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


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