Month: October 2016

October 21 – October 27, 2016

Renewable energy sources overtake coal as the world’s largest source of power capacity. The effects of ageing on the markets.



  • Gavyn Davies of the Financial Times highlighted the importance of demographics on long-term interest rates.
    • In understanding the long-term direction for interest rates, Gavyn Davies, points to a couple key trends that are likely to imply low interest rates are hear to stay in developed economies.
    • First, the decline in the labor supply growth rate has led to an abundance of capital that doesn’t have a ready place to go, hence higher demand for what investment projects do exist and with capital competing amongst itself, rates go lower/stay low.
    • Second, an increasing dependency ratio (number of young and old people relative to the number of people in the labor force). Not enough savers… this should help raise interest rates considering that less capital is being accumulated; however, there is a nuance in point three.
    • Third, the increasing life expectancy of the population. Well, with people living much longer, people are reluctant to spend as they enter their later years.
  • Chris Newlands and Madison Marriage of the Financial Times covered a recent report that indicates 99% of actively managed US equity funds underperform.
    • According to S&P Dow Jones, “99% of actively managed US equity funds sold in Europe have failed to beat the S&P 500 over the past 10 years, while only two in every 100 global equity funds have outperformed the S&P Global 1200 since 2006. Almost 97% of emerging market funds have underperformed.”
    • Accordingly, “assets held in passive mutual funds have grown 230% globally, to $6tn, since 2007. However, assets held in active funds total $24tn.”
  • Sarah Mulholland of Bloomberg illustrated how rent hikes have been leading to increasing vacancies in retail real estate.
    • With retail lease rents at record highs, tenants are pushing back and vacancies are up. According to a recent report from Cushman and Wakefield, retail vacancy on Fifth Avenue in New York are up to 15.9% in the third quarter, up from about 10% a year ago.
    • As Richard Hodos, vice chairman at CBRE Group Inc, “property trades are being based on achieving ever-higher rents, and nobody every really looks at what retailers can afford to pay. In some cases, rents need to come down 30% or more for rents to be at levels where retailers are able to make sense of them again.”
    •  Bloomberg_Retail Rents on Fifth Avenue_10-25-16
    • The issue isn’t just limited to NYC. “Retailers are being squeezed across the U.S. In 2016, malls and other types of shopping venues have been hit by 280 major-brand store closures, totaling 12.8 million square feet (1.2 million square meters), data from Reis Inc show. Another real estate research firm, Green Street Advisors LLC, estimates that several hundred malls around the country will cease operations over the next decade.”


WSJ – City Construction Set to Beat 2007 Peak – Josh Barbanel 10/25

WSJ_NYC building volume_10-25-16


*Note: bold emphasis is mine, italic sections are from the articles.

Renewables overtake coal as world’s largest source of power capacity. Pilita Clark. Financial Times. 24 Oct. 2016.

“About 500,000 solar panels were installed every day last year as a record-shattering surge in green electricity saw renewables overtake coal as the world’s largest source of installed power capacity.” 

Granted capacity does not mean electricity generation – “the amount of energy a plant actually generates varies according to how long it produces power over a period of time.” Thus, traditional sources of power – which generates power constantly (regardless of wind and darkness) – i.e. coal power still generate the majority of the world’s power. “Coal power plants supplied close to 39% of the world’s power in 2015, while renewables, including older hydropower dams, accounted for 23%, IEA data show.” 

Regardless, “two wind turbines went up every hour in countries such as China, according to International Energy Agency officials who have sharply upgraded their forecasts of how fast renewable energy sources will keep growing.”

A large part of the growth has been a result of rapidly declining costs.

“Average global generation costs for new onshore wind farms fell by an estimated 30% between 2010 and 2015 while those for big solar panel plants fell by an even steeper two-thirds, an IEA report published on Tuesday showed.” 

“An unprecedented 153 gigawatts of green electricity was installed last year, mostly wind and solar projects, which was more than the total power capacity in Canada.” 

The agency now predicts that “renewables’ share of power generation to rise to 28% by 2021, when it predicts they will supply the equivalent of all the electricity generated today in the US and EU put together.”

However, there are still policy risks that could slow the advance of renewable energy.

Demographics and markets: The effects of ageing. John Authers. Financial Times. 25 Oct. 2016.

“The new Fed paper suggests that ‘demographic factors alone account for a 1.25 percentage point decline in the natural rate of real interest and real gross domestic product growth since 1980.’ This is a huge claim, as it implies that demographics – rather than fiscal or monetary policy, technology or other changes in productivity – are responsible for virtually all of the decline in economic growth over the past 35 years.” 



“In short, low yields may be unavoidable and much of the current policy debate may be misguided.”

Fortunately, a reckoning can be delayed by encouraging and allowing workers to work later into their lives.


Other Interesting Articles

Bloomberg Businessweek

Bloomberg – N.Y. Governor Cuomo Signs Bill to Fine Illegal Airbnb Hosts 10/21

FT – Financing ‘trick’ boosts lucrative private equity fees 10/19

FT – Why bond yields are so low 10/19

FT – China’s housing frenzy starts to calm 10/20

FT – The 1890s and the end of the great bond bull market 10/23

FT – Exposure to air pollutants linked to high blood pressure 10/24

NYT – Living in China’s Expanding Deserts 10/24

WSJ – Park Hyatt Hotel Destined for Oceanwide Development in Los Angeles 10/24

WSJ – A Startup’s Pitch: Come Invest With Your Rich Uncle 10/25

WSJ – Blackstone Enters Nontraded REIT Sector 10/25

WSJ – China’s Latest Debt Crackdown Just Delays More Serious Action 10/26

WSJ – How to Get Out of Chinese Property When the Price Is High 10/27


October 14 – October 20, 2016

The Chinese housing market is looking rather shaky. Investors are going to have to brush up on their social sciences. China is smarting from an aggressive push into developing world loans.



    • “The collective wealth of the world’s ultra-rich has fallen for the first time since the aftermath of the global financial crisis even as Asia, powered by China, continues to create a billionaire every three days, according to research published on Thursday.”
    • “Last year the world’s billionaires lost 5% of their fortunes, or $300bn, and their wealth growth failed to match stock market performance for the first time in two decades, according to a report by UBS, the world’s largest wealth manager, and PwC, the professional services firm.”
    • “Over the past 20 years billionaires have increased their wealth sevenfold – double the rate of global stock market growth – in what has been termed a second ‘Gilded Age’ for wealth creation.”
    • Easy for some to say.
    • “Among the causes for the fall in billionaires’ fortunes last year were transfers of wealth…, falling commodity prices and a rising US dollar, the currency on which the report is based.”
    • “But such vast wealth can prove fleeting. While 41 billionaires made the cut in the US for the first time last year’s UBS/PwC report, 36 dropped below that level. In China the situation was even more volatile: while Asia generated 113 billionaires last year, 80 dropped below that level, of whom 50 were Chinese. Their declining fortunes were attributed to fluctuating markets and a government crackdown on corruption and graft.”
    • “The new fund, dubbed the SoftBank Vision Fund, will be based in London and seeded with $25bn from SoftBank and up to $45bn from Saudi Arabia’s Public Investment Fund over the next five years, according to a statement from the Japanese telecoms group.”
    • “At $100bn, the new fund would be the same size as all funds raised by US venture capital firms over the past two and a half years, according to data from the National Venture Capital Association.”
    • “SoftBank said the fund would be investing over a five-year time horizon, which at $20bn a year would represent roughly a quarter of total annual investments in US-based venture-backed start-ups.”
    • According to Masayoshi Son, the fund will be “the biggest investor in the technology sector.” Quite a statement.
    • “China, long the world’s factory floor, is taking control of a bigger portion of the world’s supply chains as well, causing a shift in global trade patterns by buying less from abroad.”
    • “Exports to China, which had risen nearly every year since 1990, fell 14% last year, the largest annual drop since the 1960s. They are down another 8.2% this year, through September. The decline helped shave 0.3 percentage points off world trade growth last year, and is a big reason that growth is expected to slow to 1.7% this year from the 5% a year it has averaged over the last two decades.”
    • One of the reasons, simply Chinese companies have been using less product from foreign sources. “The proportion of foreign-made inputs in Chinese exports has been shrinking by an average 1.6 percentage points a year over the past decade, and last year fell to 19.6%, from more than 40% in the mid-1990s, according to Chinese trade data.”
    • wsj_china-to-world-we-dont-need-your-factories-anymore_10-18-16
    • “To build domestic capabilities on the high end, the Chinese government last year announced a plan to raise the domestic content of core components and key materials to 40% by 2020 and 70% by 2025. It has been spending large amounts on research and development: $213 billion last year, or 2.1% of gross domestic product, according to state media reports. In June it pledged more money for ‘technological innovation.'”

Special Reports / Opinion Pieces


Twitter – Nick Grealy @RelmagineGas 10/10

Twitter_Nick Grealy @RelmagineGas_10-10-16

WSJ – Bleak Times at the Mall – Justin Lahart 10/14


WSJ – China’s Property Frenzy Spurs Risky Business – Lingling Wei 10/19


FT – Saudi Arabia’s $17.5bn bond sale has lessons for debt market – Elaine Moore and Simeon Kerr 10/20



*Note: bold emphasis is mine, italic sections are from the articles.

China’s Ballooning Mortgage Debt Built on Shaky Foundation. Anjani Trivedi. Wall Street Journal. 14 Oct. 2016.

A brief and well-articulated article on precarious position of the Chinese mortgage/housing market.

“Seeking to quell worries that China’s home-finance market has gotten out of hand, a banking regulator disclosed this week that the loan-to-value ratio in the housing market, or the ratio of the value of mortgage loans to the value of underlying property, was on average 55%.”

“But the absolute level may not matter as much as the pace of increase. UBS estimates the loan-to-value ratio of new-home purchases is even higher, closer to 70%, having surged from 15% in 2012. Much of that rise has happened in the past year.”

“As a comparison, U.S. mortgages before the housing bubble burst had a loan-to-value ratio of less than 60%… In any event, that basic number very quickly rose to over 90% when the bubble popped and prices dropped.”

“Because so many of China’s mortgages are of recent vintage, the value side of their loan-to-value calculation rests on the most recent surge in prices. Simplistically, should prices correct, say, 20%, LTVs would suddenly on average be at 70%. That doesn’t take into account individual markets where leverage and price increases might be higher. Nor does it factor in the vast market for shadow lending, which anecdotally has been helping buyers fund down payments, heaping leverage on top of leverage.”

Keep in mind, “home prices have a way of overcorrecting.”

Granted, with so much at stake for the Chinese economy, I would expect the government will do almost anything to keep the real estate cycle trending up as it moves to the right.

Investors are ill equipped for our unfathomable future. Gillian Tett. Financial Times. 13 Oct. 2016.

Ms. Tett does a good job of highlighting recent remarks by Axel Weber, former head of the Bundesbank and now chairman of UBS, at one of the International Monetary Fund meetings held recently.

Essentially, he sees three primary themes shaping the market today.

First, “the banking system today is much stronger than a decade ago as a result of post-crisis reforms.” Despite the effects of low-to-negative interest rates. So we have that going for us.

Second, “while the banking system looks healthier, markets do not.” Markets are no longer ‘markets’ in the traditional sense. There is too much distortion. For example, “in the government bond markets, where the central banks of Japan, US and eurozone currently hold a third, a fifth and a tenth of the outstanding local government bonds.”

“Central bank purchases are distorting the price of European corporate bonds and Japanese equities, with knock-on effects in numerous other asset classes. ‘I don’t think a single trader can tell you what the appropriate price of an asset he buys is, if you take out all this central bank intervention,’ Mr. Weber warned.”

Third, “these distorted markets are increasingly hostage to unfathomable political risk.”

“Now investors holding US, Japanese or European assets need to ponder questions such as: how much further can central banks take quantitative easing? Are the US and UK governments becoming anti-business? Does the rise of Donald Trump, as well as Britain’s vote to leave the EU, herald a new protectionism?”

“Most investors are not well equipped for an analysis of this kind. They built their careers by crunching numbers, not pondering social science.”

China rethinks developing world largesse as deals sour. James Kynge, Jonathan Wheatley, Lucy Hornby, Christian Shepherd and Andres Schipani. Financial Times. 13 Oct. 2016.

Just because you want something to be so, doesn’t mean it will be.

Entering the world of international development finance about a decade ago, China has jumped in head first.  “With a loan portfolio larger than all six western-backed multilateral organizations put together. Outstanding loans form the two big Chinese ‘policy’ banks and 13 regional funds are well in excess of the $700bn owed to the western-backed institutions, according to a recent study.”


Well, the thing is that when they entered the game, they backed a lot of risky players/countries.  As one Chinese official put it “China had no choice but to lend a lot to risky countries because they had the commodities we needed and because the western multilateral organizations already dominated the rest of the world.”

Of course the lesson is being learned. “These days we need viable projects and a good return. We don’t want to back losers.”

All told China has invested $65bn in Venezuela since 2007 in 17 tranches. Which “for context, $65bn is more than the World Bank has lent to any country – with the single exception of India – since 1945, data from the bank show.”

Now, in regard to Venezuela “China is no longer willing to ‘put good money after bad, unless it is the only way for it to avoid losing its entire position through the collapse of the regime.'” A possibility.

“Six of the top 10 recipients of Chinese development finance commitments between 2013 and 2015 were classified alongside Venezuela in the highest category of default risk ranked by the Paris-based OECD. By contrast, only two of the top 10 recipients of World Bank development finance fell into the same category.”


Lesson learned. We’ll see how it works out.

Other Interesting Articles

Bloomberg Businessweek

The Economist

Economist – China’s uncannily stable growth versus the price of reform 10/19

FT – How the west has lost the world 10/12

FT – Snap: high altitude (Lex) 10/13

FT – Inflation fears cast shadows over long-dated bonds 10/13

FT – China escapes deflation but are rising global prices on the way? 10/14

FT – Didi Chuxing to be hit by rules on migrant drivers 10/15

FT – Investment in UK commercial property sinks after Brexit vote 10/17

FT – Time to buy ‘real assets’ in age of inflation – BAML 10/17

FT – IPOs brought down to earth amid market uncertainty 10/18

FT – Airbnb faces fight for survival in New York City 10/19

Reuters – Manhattan office market booming as asking rents set record: report 10/13

WP – NFL ratings plunge could spell doom for traditional TV 10/14

WSJ – SoftBank’s Elephant Gun Packs a Scare 10/14

WSJ – Immigrant Investor Program for Poor Neighborhoods Benefits Rich Ones More, Study Shows 10/19

WSJ – Here’s Just How Much Building It Would Take to Boost Big-City Affordability 10/20


October 7 – October 13, 2016

There are the pension obligations kept on the books based on industry guidelines and then there are the books that track what they really think. America’s tech boom has been great for the consumer, but not so much for the employees that have been displaced.



    • “Sovereign wealth funds have pulled almost $90bn from asset managers over the past two years, as state-backed investment vehicles grapple with low commodity prices and disappointed returns.”
    • “The Norwegian government has tapped the Scandinavian country’s $890bn oil fund, the largest sovereign wealth fund in the world, for almost $6bn this year.”
    • “Moody’s, the rating agency, has predicted that sovereign outflows would be at least 25% higher in 2016 than in 2015, due to the low oil price.”
    • Other reasons stated for the pullback include: poor performance from fund groups, bringing investment management in-house, diversification, and having cash-on-hand for opportunistic investments.
    • “Between 20 and 30% of people in the US and Europe are working independently in the so-called “gig economy” according to a new study that counts moonlighters as well as full-timers.”
    • While many are satisfied with their gig arrangement, “about 30% are doing it as a last resort.”
    • Further, ‘gig’ work is not only for the young. “The survey found that in the UK, 39% of adults aged 55 and over were working independently versus 31% of 25 to 54 year olds. The same pattern was found in Sweden and Germany.”
    • “Scaling up the results of our survey suggests that 50 million Americans and Europeans are independent out of necessity, and more than 20 million of them rely on independent work as their primary source of income.”
    • In an effort to grow its inventory, Airbnb is reaching out to apartment landlords to rent out some of their vacant inventory. So far, most landlords have been declining.
    • Why?  1) “Under Airbnb’s new plan, called the Friendly Building Program, if landlords allow tenants to lease units on Airbnb, they have an opportunity to take a cut of the nightly revenue at a suggested rate of 5% to 15%.” I.E. for a “one-night, $200 stay that means the landlord would make $30 or less, an amount that many landlords say doesn’t justify the hassle.” And 2) as illustrated by “Cortland Partners, which owns 36,000 apartment units primarily in the Southeast, in a recent survey found that nearly 40% of residents would be significantly less likely to renew their leases if the company allowed tenants to rent out units on Airbnb.” Basically, as Margette Hepfner, Senior VP of Lincoln Property Co (manages or owns 175,000 units), so aptly puts it “There’s just inherent risk in allowing unknown guest to come onto your property.”
  • Josh Zumbrun of the Wall Street Journal discussed the findings from the Journal’s recent economist survey. Essentially, economists believe a recession is likely within the next four years.
    • “Economists in The Wall Street Journal’s latest monthly survey of economists put the odds of the next downturn happening within the next four years at nearly 60%.”
    • Why… because “the American economy has never grown for more than a decade without a recession.”
    • “The current expansion began in June 2009, and has now continued for 88 months, making it the fourth-longest period of growth in records stretching to 1854.”
    • However, “to be clear, the length of an expansion bears little relation to its strength. The U.S. economy has grown at a 2.1% annual pace since 2009. That is the slowest growth of any expansion after World War II.”
    • “But over the next four years, few think a recession is absolutely guaranteed. A quarter of economists place the odds below 50%.”
    • “It is precisely because the economy has grown slowly that some think the recovery could last a long time. ‘Slow and steady leaves plenty of fuel to keep going,’ said Russell Price, senior economist for Ameriprise Financial.”
  • Henny Sender of the Financial Times covered the continuing bull run in the Chinese property sector.
    • “Property as an asset class has become important in China – maybe too important. It is critical to the financial system (since 70% of all bank loans are backed by real estate collateral), as a source of economic growth and as a source of savings and wealth for many households.”
    • As Nicole Wong, the regional head of property research for CLSA in Hong Kong puts it “property is an alternative currency in China.”
    • “But no asset class is as sensitive to liquidity’s soothing effect as property and there is a lot of liquidity in China. And as it always does, liquidity is buoying the property market, well beyond the first-tier cities where so many couples go through staged divorces just so that they can each buy a starter home on more attractive terms.”
    • “‘Liquidity is coming from the sky,’ says one Hong Kong-based hedge fund manager, noting that 40% of all global money supply in recent years has come from China. So even as central banks in Japan and the US debate helicopter money for local infrastructure and other ambitious development projects, China comes closest to realizing that concept as it ramps up its money printing presses. China’s total social financing for August was again at highs set earlier this year, while for the first half it amounted to $1.5tn, he adds.”

Special Reports / Opinion Pieces

  • FT – Investors ignore messages from ‘global AGM’ at their peril – Mohamed El-Erain 10/9
    • “In sum, the AGM (Annual General Meeting) reinforces three concerns about the global economy. 1) Its prospects are becoming more fragile in terms of growth, financial stability, indebtedness and, therefore, inclusive prosperity. 2) Bizarre political dynamics add fuel to the fire, directly and by holding back timely policy adjustments. 3) The potential damage now extends beyond forgone opportunities to also undermining future potential, including open trading systems and politically-autonomous central banks.”


FT – Gap widens between China’s ‘old’ and ‘new’ economies – James Kynge 10/6

FT_New China economy companies outperforming_10-6-16

Bloomberg – Grocery Prices Are Plunging – Craig Giammona 9/26

Bloomberg_Falling Food Prices_9-26-16

FT – China anti-corruption campaign backfires – Hudson Lockett 10/9

FT_China's top concerns_10-9-16

WSJ – Worries Grow That China Faces a Perilous Property Bubble – Dominique Fong and Lingling Wei 10/7

WSJ_Chinese lending growth_10-7-16

WSJ – Mainland China’s Property Bubble Leaks Into Hong Kong – Jacky Wong 10/12


Visual Capitalist – These 3 Maps Help to Visualize America’s $18 Trillion Economy – Jeff Desjardins 10/12



*Note: bold emphasis is mine, italic sections are from the articles.

A Sour Surprise for Public Pensions: Two Sets of Books. Mary Williams Walsh. New York Times. 17 Sep. 2016.

Turns out, the California Public Employees Retirement System (CalPERS) – and many similar pension funds for that matter – keep two sets of books on calculating their pension obligations and funding requirements.  One based on actuarial values and another based on “market values.”  Well the issue just came to light in a small case for the Citrus Pest Control District No. 2 that just received a very hefty bill to cover a shortfall (plus interest) for deciding to convert to a 401(k) plan.  What changed at the moment of that decision…basically Calpers went from calculating the benefit owed based on actuarial tables to using a more prudent ‘market approach’ considering it no longer had the right to go after the community for future contributions.

What is the ‘market value?” Basically, “the market value of a pension reflects the full cost today of providing a steady, guaranteed income for life – and it’s large. Alarmingly large, in fact. This is one reason most states and cities don’t let the market numbers see the light of day.”

If you want to see the difference between the two values, the Stanford Institute for Economic Policy Research now publishes the two for California pensions.

Thing is that pensions operate on the actuarial standards, standards which exacerbate pension shortfalls.  “Actuarial values determine the annual contributions that states and local governments make to their pension plans, so if the target numbers are too low, the contributions will always be too small. Shortfalls will be compounding, invisibly.”

As Jeremy Gold, an actuary and economist, made note in a speech last year “actuaries shamelessly, although often in good faith, understate pension obligations by as much as 50%… Their clients want them to.”

In the case of Citrus Pest Control District No. 2, Calpers was calculating the municipality’s obligations at an assumed rate of return on assets “now generally around 7.5%,” but when calculating the ‘market value’ of the obligation when the Citrus made the switch, Calpers used a more realistic (based on the current risk-free rate for a similar duration) 2.56%.  Boom, $447,000 shortfall – this is for only 6 people.

‘Houston we have a problem.’

America’s Dazzling Tech Boom Has a Downside: Not Enough Jobs. Jon Hilsenrath and Bob Davis. Wall Street Journal. 12 Oct. 2016.

The highlight is that for all the wealth created from the tech boom, jobs have been cut rather than added.

“Google’s Alphabet Inc. and Facebook Inc. had at the end of last year a total of 74,505 employees, about one-third fewer than Microsoft Corp. even though their combined stock-market value is twice as big. Photo-sharing service Instagram had 13 employees when it was acquired for $1 billion by Facebook in 2012.

“American tech workers are getting a smaller piece of the economic pie created from what they produce. As of 2014, employee compensation in computer and electronic-parts making was equal to 49% of the value of the industry’s output, down from 79% in 1999, according to the Commerce Department.”


“WhatsApp had more than 450 million users world-wide when Facebook bought the messaging service for $19 billion in 2014, turning founder Jan Koum into a billionaire several times over. At the time of the acquisition, WhatsApp had 55 employees.

“Economist call the phenomenon ‘skill-biased technical change.’ The spoils of growth go to those few people with skills and luck and who are best positioned to take advantage of new technology.”

“The five largest U.S.-based technology companies by stock market value-Apple, Alphabet, Microsoft, Facebook and Oracle Corp.-are worth a combined $1.8 trillion today. That is 80% more than the five largest tech companies in 2000.”

“Today’s five giants have 22% fewer workers than their predecessors, or a total of 434,505 as of last year, compared with 556,523 at Cisco Systems Inc., Intel, IBM, Oracle and Microsoft in 2000.”

“Harvard University economist David Deming estimates that the hollowing-out of work spread to programmers, librarians and engineers between 2000 and 2012. As much as $2 trillion worth of human economic activity could be automated away using existing technologies, such as Amazon’s robots, in coming years, consulting firm McKinsey & Co. estimates.”

Other Interesting Articles

Bloomberg Businessweek

The Economist

Bloomberg – China Property Bubble Could Cause $600 Billion in Bad Debts 10/6

FT – Italy’s 50-year bond – mind the valuation gap 10/6

FT – Renminbi eyes lows as China enjoys reserve currency status 10/9

FT – The Saudis’ strategic failure 10/9

FT – China approves controversial debt-for-equity program 10/10

FT – More millennials switch off social media 10/10

FT – Norway’s oil fund warns on lack of stock market listings 10/11

FT- China corporate raider’s wealth soars ninefold to $17bn 10/12

FT – Dividend or disaster? Nigeria grapples with demographic conundrum 10/12

NYT – Behind Duterte’s Bluster, a Philippine Shift Away From the U.S. 10/9

NYT – This City Is 78% Latino, and the Face of a New California 10/11

WSJ – Recession Odds: Fed Says Don’t Count On It 10/9

WSJ – WeWork Raises $260 Million, Capping Off $690 Million Funding Round 10/12


September 30 – October 6, 2016

Xi Jinping, the master politician. In the US oil and gas industry it’s about time for some more culling of the herd. Uber providing transportation solutions for US municipalities.



    • “Saudi Arabia has cut public sector bonuses and benefits for the first time since the collapse in oil prices, in a move that underlines the depth of the fiscal crisis facing the kingdom.”
    • “The new rules, which come into force next month, apply to all public sector workers, both Saudis and expats, as well as the military (except soldiers serving in Yemen).”
    • “If you were a white kid who went to work straight out of high school around 1975, you earned roughly $44,000 two decades later. BY 2014, on average, your pay had fallen to $32,000 a stunning 27% decline in real terms, after accounting for inflation.”
    • “College grads are doing okay. Across all age groups, income in this group rose from $77,209 in 1996 to $94,601 in 2014, a 22.5% increase. A college-educated worker who was 28 in 1996 and 46 in 2014 enjoyed a whopping 132.8% spike in pay. The only losers among college grads were those were those 57 or older in 2014. Their pay fell from somewhere between 13% and 28.5% between 1996 and 2014, but still leveled out at $83,000 or higher in 2014, well above the national average.”
    • Yahoo Finance_Wage and salary income chart_10-5-16
  • In a Financial Times guest correspondence piece, Steven Major (head of fixed-income research at HSBC) discussed why there is no game-changer that will end the bond bull market.
    • I’m going to keep this one real brief by just listing the major points.
    • “Backdrop favors a low real natural rate of interest”
    • “Deleveraging across public and private sectors has not started”
    • “Central banks continue to amass huge balance sheets”
    • “Connectivity between markets is increasing”
    • “We realize that all this makes pretty grim reading for those hoping for an improvement in the growth outlook and a return to ‘normal,’ whatever that is. But this is part of the problem. There is no shortage of hope that something will turn up and there is excessive vested interest in the higher yield view. Too much money is chasing too little return.”
  • The Financial Times Confidential Research division produced a report on how underground loans in China are defeating attempts to cool the housing market.
    • “Analysis by FT Confidential Research suggests that underground lenders have become an important source of funding for Chinese consumers struggling to make down payments on home purchases as real estate prices surge. Such lending may hamper attempts to cool down overheating top-tier housing markets.”
    • FT_Consumer loans from underground lenders in China_10-5-16
    • “Despite concerns at the central level about housing bubbles, the property market’s rising tide is lifting other economic boats, FTCR data show. Our proprietary surveys found positive sentiment in the freight sector and construction labor market, the indices for both of which hit 2016 highs, while households have not been in such good cheer for nearly two years.”
    • FT_Average house prices in Shanghai and Shenzhen_10-5-16
    • “Consumers appear to be responding to the wealth effect generated by rising house prices. Our monthly measure of consumer sentiment rose to its highest level since October 2014. Survey respondents reported strong improvements in their household financial situations, discretionary spending and views on the economy. Furthermore, the forward-looking components of our suite of monthly data suggest momentum is set to carry through to the end of 2016.”

Special Reports / Opinion Pieces


FT – Global economic growth ‘sliding back into the morass’ – Chris Giles 10/2

FT_Overall growth index_10-2-16

WSJ – A New Worry for Banks and the Economy – Aaron Back 10/3


Visual Capitalist – Black Swans: 9 Recent Events That Changed Finance Forever – Jeff Desjardins 10/5

Visual Capitalist_Black Swans_10-5-16

WSJ – Some Big U.S. Cities See Apartment Rents Fall for First Time in Years – Laura Kusisto 10/4

WSJ_Rental rates cooling off_10-4-16

FT – Perth’s slide highlights Australia commodity bust – Jamie Smyth 10/4

FT_Australian House price changes_10-4-16

FT – World debt hits $152tn record, says IMF – Claire Jones 10/5

FT_Global gross debt_10-5-16


*Note: bold emphasis is mine, italic sections are from the articles.

Xi Jinping May Delay Picking China’s Next Leader, Stoking Speculation. Chris Buckley. New York Times. 4 Oct. 2016.

“The Chinese president, Xi Jinping, appears prepared to defy the Communist Party’s established script for transferring power and delay the designation of his successor until after a party congress next year, unsettling the party elite and stirring speculation that he wants to prolong his tenure.”

“The delay would buy Mr. Xi more time to promote and test favored candidates and prevent his influence from ebbing away to a leader-in-waiting, experts and political insiders said. But the price could be years of friction while a pack of aspiring cadres vie for the top job, as well as unnerving uncertainty over whether Mr. Xi wants to stay in power beyond the usual two terms as party leader.”

“The drama will probably begin in earnest this month, when the Central Committee, about 200 senior officials who sign off on major decisions, meets in Beijing. That meeting is likely to set in motion plans for the congress, which will meet in late 2017 to endorse a new top lineup.”

“While it is a given that the congress will back Mr. Xi for another five-year term as party leader, nearly everything else is up for grabs, giving Mr. Xi great sway to shape the new leadership.”

“Five of the seven members of the powerful Politburo Standing Committee must step down because of age, assuming the informal retirement age of 68 holds. That leaves only Mr. Xi, 63, and Mr. Li, 61, to return.”

US oil and gas pipeline industry ripe for consolidation. Ed Crooks. Financial Times. 4 Oct. 2016.

“Tim Schneider, analyst at Evercore ISI, argues that the North American pipeline industry is on the verge of a wave of consolidation like the one that swept through the large integrated oil companies in the late 1990s and early 2000s.”

“The US has about 140 Master Limited Partnerships: a tax-advantaged structure available to energy infrastructure businesses that is typically used by midstream operators. Mr. Schneider argues that only about half of those have a ‘right’ to exists. Many will have to sell themselves, dispose of assets to stay alive, or ‘simply disappear’, he says.”

FT_North American pipeline M&A_10-4-16

“In 2014, there were 9,679 miles of crude oil pipeline completed in the US, according to IHS Markit, the research group. In 2017, it expects 4,175 miles of large projects to be completed, assuming Dakota Access (the contested 1,172 mile pipeline from the shale oilfields of North Dakota to Patoka, Illinois) goes ahead.”

FT_US crude oil pipeline additions_10-4-16

“Many MLPs, and some of the pipeline companies that are structured as regular corporations, have business models that depend on perpetual growth justifying continuing cash inflows.”

“Energy Transfer Partners, for example, in the first half of this year distributed $1.8bn to investors and spent $3.5bn on capital investment, but generated cash from operations of just $1.4bn. The numbers were made to add up by selling the Sunoco retail business to its affiliate Sunoco LP for $2.2bn, and by issuing units worth $1.1bn.”

In regard to the MLP industry, Tim Schneider put it this way “they are like cattle feeding at a trough. The weaker ones are going to get shoved aside.”

Uber offers subsidized rides in drive to solve US parking crisis. Leslie Hook. Financial Times. 5 Oct. 2016.

“In a first-of-its-kind of deal for Uber, Summit (New Jersey) has hired the company to provide free rides for commuters to and from its train station, starting this week. For the local authority, the six-month pilot helps solve its downtown parking crisis; for Uber, the deal is one it hopes to replicate across the country.”

“These transit deals could potentially give Uber access to a new revenue source, from transportation authorities, and access to new passengers. Just as importantly, Uber sees them as a means towards its ultimate goal: a world where shared autonomous cars are a primary mode of transportation and private vehicle ownership is no longer necessary.”

“The Summit deal focuses on what is known as the ‘last mile’ problem of getting commuters to and from rail stations, which researchers consider to be an ideal use case for ride-sharing.”

“Facing budget pressures, US cities are increasingly experimenting to see whether hiring Uber, or its smaller rival Lyft, can be a cheaper alternative to building parking garages or adding bus routes.”

“Last month, Boston announced a test program that subsidizes Uber and Lyft rides for disabled passengers, a faster option compared with the city’s door-to-door van service. Earlier this year, a county in Florida started providing free Uber rides at night for low-income passengers – a cheaper alternative to a night bus. Another city in Florida pays for all its residents to have discounted Uber rides, and Washington DC is even considering using Uber to help respond to non-emergency 911 calls.”

“In Summitt, Mayor Nora Radest said the city contacted Uber a year ago to talk about a deal because it was looking for an economical way to address its downtown parking shortage. Hiring Ubers for its commuters will cost about $167,000 a year, the city estimates, while building a parking garage would have cost more than $15m.”

“We are looking at this not as a transportation solution but as a parking solution. The goal is to get those 100 cars that sit in the commuter station all day, and get them out of there.” – Mayor Radest

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