Month: November 2016

November 18 – November 24, 2016

Chinese mainland real estate companies pricing out local developers in Hong Kong.

Happy Thanksgiving everyone and thanks for reading.


Special Reports / Opinion Pieces


  • Esther Fung of the Wall Street Journal highlighted that some property landlords are making deals with Uber and Lyft to allow for or make up for parking shortages.
    • “Ride services such as Uber and Lyft, along with the promise of driverless cars, represent the ‘single biggest game-changer for real estate’ over the next several decades, said Dave Bragg, an analyst at real-estate research firm Green Street Advisors.”
    • “In all, Green Street estimates parking needs will be cut in half over the next 30 years amid an anticipated decline in vehicle ownership, eliminating the need for 75 billion square feet of parking space.”
    • “Green Street expects mass adoption to begin around 2030 and to be completed 15 years later. Uber already has suggested its entire fleet would be driverless by 2030.”
    • Are the Uber drivers savvy to this?


FT – Italian 10-year bonds on course for worst month since 2012 – Mehreen Khan 11/17


NYT – As American as Apple Pie? The Rural Vote’s Disproportionate Slice of Power – Emily Badger 11/20


Visual Capitalist – How Much Government Debt Rests Upon Your Shoulders – Jeff Desjardins 11/23



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

Mainland money distorting Hong Kong land prices, tycoon warns. Ben Bland. Financial Times. 24 Nov. 2016.

An interesting thing when local developers are priced out of a market by aggressive and seemingly foolhardy outsiders. What’s noteworthy is who is making the statement and how much development property sites are now going for in Hong Kong – despite its troubles.

“Lui Che-woo this month lost out in an auction for a Hong Kong site that was acquired by a subsidiary of HNA, the acquisitive (Chinese) mainland conglomerate, at double the price paid for a similar site in 2014.” 

Lui Chee-woo is head of Galaxy Entertainment and happens to be worth $11bn according to Forbes. HNA is a Chinese conglomerate with business lines that include aviation (Hainan Airlines), real estate, financial services, etc.  HNA also recently acquired a 25% stake in Hilton Worldwide from Blackstone for about $6.5bn in October.

“The site went for about HK$13,500 (USD $1,740) per square foot – similar to the going rate for completed apartments nearby.” 

That’s per buildable square foot folks…add another $1,000 psf in direct construction costs (probably around that amount to attain a finish level worthy of these price points), plus another $1,000+ psf or so in soft costs (you’ll need brand name architects to be consistent with the message), financing, and profit, and you’re at around $4,000+psf.  Not unheard of in this market, but consider the comps at around 50% of this…

“Mainland developers acquired 44% of the residential land sold by the Hong Kong government last year, up from just 7% in 2012, according to calculations by Spacious, a property listings website. In the year to date, mainland companies have bought 39% of the land auctioned.” 


Bottom line, different folks/companies have different return metrics and objectives…

Other Interesting Articles

Bloomberg Businessweek

The Economist

A Wealth of Common Sense – How Bad Could Bond Market Losses Get? 11/20

Economist – You may be higher up the global wealth pyramid than you think 11/23

FT – China’s hairy crab scandal reveals depth of pollution crisis 11/17

FT – Jared Kushner, favored son-in-law of Donald Trump 11/18

FT – Blackstone looks to sell $2.3bn Japan property portfolio to Anbang 11/21

FT – Honeymoon is over for new Saudi leader as reform pain kicks in 11/22

NYT – Donald Trump’s Son-in-Law, Jared Kushner, Tests Legal Path to White House Job 11/17

NYT – Quit Social Media. Your Career May Depend on It. 11/19

NYT – Italy’s Banks Are in a Slow-Motion Crisis. And Europe May Pay. 11/19

NYT – Dallas Stares Down a Texas-Size Threat of Bankruptcy 11/20

NYT – Gender Colors Outrage Over Scandal Involving South Korea’s President 11/21

NYT – Mortgage Rates’ Rise Catches Home Buyers – and Lenders – Off Guard 11/23

WP – The North Pole is an insane 36 degrees warmer than normal as winter descends 11/17

WSJ – China Cracks Down on Home Buyers With Fake Divorces 11/22

WSJ – Rising Rates Threaten Global Property Investments 11/22

November 11 – November 17, 2016

Folks this Pension issue is a BIG PROBLEM. Speaking of problems, pollution in Delhi is a doozy. Supply side subsidies loom large in corporate China.


Special Reports / Opinion Pieces

  • GMO Quarterly Letter – Not With a Bang But A Whimper – Jeremy Grantham – Q3 2016
    • “Well, the US market today is not a classic bubble, not even close. The market is unlikely to go “bang” in the way those (Japanese land and Japanese equities in 1989, US tech in 2000, and more or less everything in 2007) bubbles did. It is far more likely that the mean reversion will be slow and incomplete. The consequences are dismal for investors: we are likely to limp into the setting sun with very low returns. For bubble historians, though, it is heartbreaking for there will be no histrionics, no chance of being a real hero. Not this time.”


    • While not the crux of the article, Anjani provides a succinct description of the rationale for Prime Minister Modi’s recent invalidation of 500 and 1,000-rupee notes (with just a few hours’ notice).
    • “The shock reform is aimed at rubbing out India’s pervasive black money – or unaccounted-for cash, some counterfeit, some legitimate but evading taxes. It is a bold move for Prime Minister Narendra Modi, who should get credit for bringing a larger part of the shadow economy into the formal economy.”
    • “But it is a dangerous move in the near term. The shadow economy accounts for more than 20% of gross domestic product and cash is equal to 12% of the GDP, triple the level in emerging markets generally, according to Nomura. The move has the potential to stifle commerce until the new notes are widely available.”
  • Pilita Clark of the Financial Times discussed an interesting finding by Scientists that there is progress in the fight against growing CO2 emissions.
    • “Global carbon dioxide emissions from burning fossil fuels have stayed almost flat for the third year in a row in what scientists say is a “clear and unpredicted break” that could mark a turning point in the world’s efforts to curb climate change.”
    • “Emissions are only expected to rise by 0.2% in 2016, having failed to increase in 2015 and growing by just 0.7% in 2014.”
    • “That is a sharp turnaround from the decade up to 2013 when carbon pollution growth averaged 2.3% a year.”
    • “A fall in the use of coal in China, by far the world’s largest carbon emitter, is the main reason for the slowdown.”
    • However, “researchers also cautioned that the job of curbing dangerous temperature rises had been made harder by the record growth of carbon dioxide concentrations in the atmosphere.”
    • “Atmospheric CO2 levels surged to 400 parts per million in 2015, the highest level seen in at least the last 800,000 years.”
    • “Concentrations are expected to climb to new records in 2016 on the back of a strong El Nino weather system that produced hot and dry conditions in many parts of the world, sapping the ability of trees and other vegetation to absorb carbon dioxide.”
  • Lucy Hornby and Christian Shepherd of the Financial Times featured the lengths that Chinese shopping mall landlords are going through to attract visitors to their centers, steps that include housing a polar bear named ‘Pizza.’
    • “The use of animals and other attractions comes as malls combat overcapacity, a problem immediately apparent to anyone who has turned up at a dusty, half-vacant shopping center in China’s provincial cities. The country has an estimated 4,000 malls, more than the US, and plans to reach 7,000 by 2025, according to Mall China, an industry organization.”
    • “Malls are starting to bring in a lot more entertainment and a lot more food. There is also a big focus on children – playgrounds, learning centers, even museums.” – Shaun Rein, founder of Shanghai-based China Market Research Group
    • “Last year 83 shopping malls gave up the fight and closed, according to a blue book on the commercial sector by the Chinese Academy of Social Sciences. They will be joined this year by Marks and Spencer, which announced last week it would close several stores in China in an effort to boost its flagging fortunes.”
  • Landon Thomas Jr. of the New York Times highlighted a recent interview with Blackstone’s Hamilton E. James and his plans to help with the retirement crisis.
    • The billionaire, Hamilton E. James, president of Blackstone, the private equity group. The plan, mandatory retirement contributions. It works in Singapore…
    • Why… “the average retirement savings for Americans from the age of 40 to 55 is $14,500… Sixty-eight percent of working-age Americans do not have an employer-sponsored retirement plan. And by 2050, 25 million Americans are projected to face lives of poverty when they stop working.”
  • Peter Grant of the Wall Street Journal pointed to the trouble brewing in commercial real estate.
    • “Defaults are rising in a key corner of the commercial real-estate debt market just as borrowing costs are set to jump, raising the likelihood of a slowdown of the $11 trillion U.S. commercial property sector in 2017.”
    • “Commercial property sales volume was down 8.6% in the first nine months of 2016 to $345.4 billion, according to Real Capital Analytics.”
    • “Now defaults are on the rise as well. More than 5.6% of some $390 billion worth of commercial property mortgages that have been packaged into securities was more than 60 days late in payment in September, according to Moody’s Investors Service. That was up from a 4.6% delinquency rate earlier this year.”
    • “In all, Morningstar Credit Ratings LLC predicts borrowers won’t be able to pay off roughly 40% of the commercial mortgage-backed securities loans coming due next year.”
    • “Adding to the market’s worries are new rules that go into effect on Christmas Eve under the Dodd-Frank regulatory overhaul requiring issuers of commercial mortgage-backed securities to keep at least 5% of the securities they create.”
    • “The so-called risk-retention rules likely will make borrowing more costly and complicated, raising the chances that some property owners won’t be able to refinance loans from the boom years.”
  • Chris Kirkham of the Wall Street Journal illustrated how a worker shortage has led more home builders to turn to prefab construction.
    • “A persistent shortage of construction workers across the U.S. is prompting some of the nation’s largest home builders to experiment with a model they once derided: factory production.”
    • “In the U.S., only about 2% to 3% of homes built in recent years are classified as modular, according to the Census. In other parts of the world, that share is significantly higher. More than a third of all homes in Austria and Sweden are built using off-site methods, and in Japan more than three-quarters of all detached homes are pre-assembled, according to industry research.”
    • wsj-modular-home-building_11-14-16
    • “But throughout the U.S. housing recovery, builders have suffered from a shortage of skilled labor, making it tough for them to keep up with demand. The number of workers employed in the industry this year is nearly 30% below the peak in 2006 and more than 15% below the average during the 2000s, according to the Labor Department.”
  • Chris Kirkham of the Wall Street Journal featured a recent affordable-housing initiative that was passed in Los Angeles that builders say will stifle construction.
    • “Nearly two-thirds of Los Angeles voters last week approved a citywide affordable-housing requirement for developers seeking to build projects of 10 or more units that need a zoning or height change.”
    • “The rule requires that up to 25% of units in rental properties and up to 40% in for-sale projects meet affordability guidelines. Alternatively, developers can pay a fee to the city.”
    • On top of that, the Los Angeles initiative “sets wage standards for the projects.”
    • “Developers must pay construction wages on par with those required for public-works projects, hire 30% of the workforce from within city limits, set aside 10% of jobs for certain disadvantaged workers living within 5 miles of the project and ensure 60% of workers have experience on par with graduates of a union apprenticeship program.”
    • Yeah, so that shortage in labor mentioned above is only going to get better when the qualifications and attributes of which labor you can use are made specific.
    • “Research is mixed on whether affordable housing mandates restrict the overall supply of housing in an area. A San Jose University study of California cities adopting such requirements in the mid-2000s found a notable decline in building permits after the rules were put in place, whereas other studies have found little or no effect on overall construction.”


Bloomberg – World’s Biggest Real Estate Binge Is Coming to a City Near You 11/14


FT – India’s cash clampdown is not radical enough – Martin Sandbu 11/14


FT – 10-yr Bund yields at 9-month high as bond sell-off continues – Nicholas Megaw 11/13


WSJ – Daily Shot Charts – 11/15





A Wealth of Common Sense – The Bright Side of Rising Interest Rates – Ben Carlson 11/13

Charts from the Wall Street Journal. Effect of a 1 percentage point increase:


Effect of a 1 percentage point decrease:



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

Era of Low Interest Rates Hammers Millions of Pensions Around World. Timothy W. Martin, Georgi Kantchev, and Kosaku Narioka. Wall Street Journal. 13 Nov. 2016.

“As low interest rates suppress investment gains in the pension plans, it generally means one thing: Standards of living for workers and retirees are decreasing, not increasing.”

“The low rates exacerbate cash problems already bedeviling the world’s pension funds. Decades of underfunding, benefit overpromises, government austerity measures and two recessions have left many retirement systems with deep funding holes. A wave of retirees world-wide is leaving fewer active workers left to contribute. The 60-and-older demographic is expected to roughly double between now and 2050, according to the United Nations.”

“Pension funds around the world pay benefits through a combination of investment gains and contributions from employers and workers. To ensure enough is saved, plans adopt long-term annual return assumptions to project how much of their costs will be paid from earnings. They range from as low as government bond yield in much of Europe and Asia to 8% or more in the U.S.”

“The problem is that investment-grade bonds that once churned out 7.5% a year are now barely yielding anything. Global pensions on average have roughly 30% of their money in bonds.”

“Funding gaps for the two biggest funds in Europe and the U.S. have ballooned by $300 billion since 2008, according to a Wall Street Journal analysis.”

“Japan is wrestling with the same question of generational inequality. Roughly one-quarter of its 127 million residents are now old enough to collect a pension. More than one-third will be by 2035.”


“A typical Japanese couple who are both 65 would collect today a monthly pensions of ¥218,000 ($2,048). If they live to their early 90s, those payouts, adjusted for inflation, would drop 12% to ¥192,000.”

“In the U.S., the country’s largest public-pension plan is struggling with the same bleak outlook. The California Public Employees’ Retirement System, which handles benefits for 1.8 million members, recently posted a 0.6% return for its 2016 fiscal year, its worst annual result since the financial crisis. Its investment consultant recently estimated that annual returns will be closer to 6% over the next decade, shy of its 7.5% annual target.”

“Yet the Sacramento-based plan still has just 68% of the money needed to meet future retirement obligations. That means cash-strapped cities and counties that make annual payments to Calpers could be forced to pay more.”

As an example, the affluent city of Costa Mesa in Orange County, “has outsourced government services such as park maintenance, street sweeping and the jail, as a way to absorb higher payments to Calpers. Pension payments currently consumer about $20 million of the $100 million annual budget, but are expected to rise to $40 million in five years.”

“The outsourcing and other moves eliminated one-quarter of the city’s workers. The cost of benefits for those remaining will surge to 81 cents of every salary dollar by 2023, from 37 cents in 2013, according to city officials.

Pollution in India: Worse than Beijing. Economist. 10 Nov. 2016.

“Delhi’s annual average measure of PM2.5, a fine dust that is the most toxic component of its pollution, stands at 122 micrograms per cubic meter (μg/m3), about double Beijing’s annual average. On Diwali and ten succeeding days this year, Delhi’s air was clogged with averages of well over 500μg/m3, with peaks of up to 1,000μg/m3. The World Health Organization (WHO) says the ‘safe’ PM2.5 level is a mere 25μg/m3 over hours.”

“Edward Avol, an American scientist who has studied the effects of vehicle exhaust on children, says that Delhi’s pollution is at ‘an occupational level of exposure,’ meaning that it is as bad as that experienced by, say, miners using power tools in a closed space.”

Why… a couple of reasons. 1) The burning of rice stubble after harvest in neighboring areas – politicians are loath to make life difficult for farmers and have provided subsidies to encourage rice cultivation over other crops. 2) The diesel fuel used in India – which has also been subsidized to make it cheaper for farmers and truck drivers whose rigs and machinery run on diesel. Side effect is that diesel has been cheaper than gasoline, hence most Indians drive vehicles that run on diesel. 3) There are simply a lot of people in Delhi and the country is going through an industrialization.

As to the price being paid by the citizens… “A study published in Delhi in 2008 estimated that 40% of residents had damaged lungs. Along with a range of other ill effects from pollution, they were five times more likely to suffer from chronic lung disease than other Indians, and four times more likely to have hypertension.”

“Frighteningly, notes Mr. Avol, those results were based on levels of pollution that are only one-fifth to one-tenth of what Delhi lives with.”

In Trump’s China, Industrial Subsidies Loom Large. Anjani Trivedi. Wall Street Journal. 16 Nov. 2016.

“Large government subsidies, which are no secret, are becoming a larger part of operating profits at China’s companies, both state-owned and private. Almost 14% of listed, nonfinancial companies’ profits are attributable to government support, according to an analysis by Wind Info. That’s up from just under 5% six years ago. Even among private firms, many of which have state shareholders, 11% of profits come from the state.”

“Driving the need for the hand outs: In China, when a company posts losses for four straight years, it gets delisted from the stock exchange. Almost 10% of listed provincial state-owned companies rely on government largess to be profitable.”


“Thriving sectors benefit as well. In China’s car industry, the world’s largest, subsidies have grown 50% annually since 2010. For leading car maker Geely, government subsidies and grants have accounted for 19% of gross profits, on average, over the past five years.”

However, “government incentives are hardly confined to China. The U.S. has its own web of tax incentives and other inducements. Global multinationals rank among the largest recipients too. Many boost come through programs that incentivize consumers. China’s help tends to be more on the supply-side.”

Other Interesting Articles

Bloomberg Businessweek

The Economist

Bloomberg – Manhattan Renters Score Record Incentives in Apartment Glut 11/10

Bloomberg – Oil, Earthquakes and the Rush to Save Oklahoma 11/14

Bloomberg – The Real Cost of an MBA 11/16

FT – India’s cash chaos sparks growing backlash 11/13

FT – Buy dollars is the sudden Trump-era consensus trade 11/13

FT – Oil demand will grow for decades, says IEA 11/15

FT – Inflating inflation expectations 11/16

FT – Italy’s 50-year bond burnt in global sell-off 11/16

FT – Bank of Japan tests new firepower 11/16

FT – China’s renminbi hits 8-year low 11/16

FT – US urged to ban acquisitions by Chinese state-owned companies 11/16

LinkedIn – Reflections on the Trump Presidency, One Week after the Election (Ray Dalio) 11/15

NYT – ‘We Couldn’t Believe Our Eyes’: A Lost World of Shipwrecks Is Found 11/11

NYT – Teslas in the Trailer Park: A California City Faces Its Housing Squeeze 11/13

WSJ – SolarCity Could Give Tesla Too Much Sun 11/13

WSJ – At Long Last: The Earnings Recession Is Finally Over 11/13

WSJ – China’s Jack of All Trades (Evergrande Group) Needs a New Strategy 11/15

WSJ – China’s Debt Plan Feels Like Bad Case of déjà vu 11/15

WSJ – Donald Trump: The Housing Market’s Latest Threat 11/15

WSJ – New Competition for ‘Co-Working’ Model 11/15

WSJ – Firms Flee Mortgage-Backed Bond Business 11/15

WSJ – Ritzy Rentals Flood the Market 11/16

WSJ – Bank of Japan Keeps Rates Ready for Something Bigger 11/17


November 4 – November 10, 2016

Oil peaking in five years? Gig economy creating or cannibalizing jobs?


Special Reports / Opinion Pieces


    • “Yes, the company experienced three straight quarters of declining iPhone sales before registering an uptick in its most recently completed quarter. And its overall quarterly profit slid for the first time in 15 years. Even so, Apple accounted for a staggering 103.6% of the smartphone industry’s operating profits during the third quarter, according to a BMO Capital Markets analyst, Investor Business Daily reported.”
    • “Making it even more remarkable is the fact that Apple has actually been losing market share. In the third quarter of 2016, Android captured a record 88% of the global market, according to Strategy Analytics. Meanwhile, Apple’s iOS share slipped to 12.1% in the same period, from 13.6% the year prior.”
  • Kiran Stacey of the Financial Times covered how smog levels in Delhi are driving out some of its middle-class residents.
    • Pollution is bad in India’s political hub. Really bad with particulate levels last week reaching more than 30 times the World Health Organization limit recommended for safe habitation.
    • “The economic consequences of Delhi’s pollution are already being seen in the property market – often a leading indicator of what will happen to the rest of the economy.”
    • “In the past three years, property prices in Delhi have fallen 21.7% according to the MagicBricks property index. And estate agents say the decline is accelerating.”
    • “‘Rents have really fallen in the last year – on average by more than 30%,’ said Kajal Makhijani of Mak Realtors, a broker who works in particular with the expatriate community. ‘Expats are getting really worried about the pollution and deciding not to come, or to work outside the city. Recently we have seen those concerns start to be shared by Indians as well.'”
  • Illustrated in the Daily Shot in the Wall Street Journal on November 8…
    • “Consumer debt (excluding mortgages) rose more than expected – shown as a percentage of GDP below.”
    • daily-shot_fred-us-consumer-credit_11-8-16
    • “A good portion of this increase was from student loans. The chart below shows student debt directly owned by the federal government, which has now exceeded $1 trillion. Note that the total student debt outstanding (including debt that is guaranteed by the government) is about $1.4 trillion.”
    • daily-shot_fred-us-student-loans_11-8-16


FT – In charts: America’s growing state of disunion – Shawn Donnan, Sam Fleming, and Lauren Leatherby 11/7


WSJ – Daily Shot: November 8, 2016



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

Will oil peak within 5 years? Nick Butler. Financial Times. 3 Nov. 2016.

“On November 2 Simon Henry, the chief financial officer of Royal Dutch Shell and one of the most respected figures in the industry, told analysts on a conference call for the Shell results presentation that he believed ‘oil demand will peak before supply and that peak may be between five and 15 years hence.'”


“Oil demand in the developed OECD world has already peaked and is 9% below the level reached in 2005. In Europe, oil demand is down 17% over the same period.”

“All the indications are that in the developed world demand has further to fall. Oil use is now heavily concentrated in the transport sector. Electric vehicles have only a fractional share of the market but the numbers are growing month by month. Technology is improving, reducing costs and expanding sales. Tesla gets most of the publicity but those wanting to understand the impact of EVs on the oil market should look at China where 188,000 new electric and hybrid vehicles were sold in 2015. This year that number is expected to more than double to around 450,000.”

“As EVs proliferate, their costs will fall until they are the natural purchase everywhere.”

The implications for the oil companies are plateaued-to-falling demand and corresponding pressure on oil pricing.

With the biggest challenge facing the “producing countries, especially those that have failed to diversify their economies, such as Russia, Nigeria, Algeria, Venezuela and, of course, Saudi Arabia. Some have such a low production cost base that they should be able to keep their market share. But with the prospect of a decline in oil use in mind many will want to maximize production quickly to extract as much revenue as possible as soon as they can. In a declining market the expectation will be that prices will stay low or fall further, removing any remaining incentive to keep oil in the ground.”

“The 20th century was the age of oil. The 21st will not be and the adjustment process for those involved could be very disruptive – destroying rentier economies built on oil revenues, changing the pattern of trade and adding another challenge to unstable and dangerous parts of the world.”

Is the Gig Economy Cannibalizing or Creating Jobs? Here’s Some Early Evidence. Mark Muro. Wall Street Journal. 3 Nov. 2016.

“Does the so-called gig economy of app-based freelancing for platforms like Uber or TaskRabbit complement or ‘cannibalize’ more conventional payroll work? Given the sketchiness of the data available, it’s been hard to tell.”


“All in all… the online freelance marketplaces may well gain workers at the expense of competing payroll businesses in some industries, particularly where incumbents are struggling in weaker markets or fail to respond with better service.”

“All of this is important because of the rise of online temping, freelancing and independent contracting has huge implications for the circumstances of workers and families in cities.”

“To begin with, the scale of the trend is enormous. In this regard, the spread of new, gig-based business models for linking workers to work isn’t just a limited scale, vanguard development. Instead, the changes affecting a few hundred thousand workers in the rides and rooms industries are a tiny part of a pervasive, economywide move toward nontraditional freelance, contract or temporary work arrangements in dozens of industries. And the number of workers involved is huge. Overall, there may be as many as 68 million ‘independent’ workers in the U.S., according to a new estimate by the McKinsey Global Institute. Within a decade, nearly half of all employed Americans may be employed this way. So the size of the trend alone underscores the need to pay attention.”

“Beyond that, the shift to alternative work arrangements matters for policy makers because it represents a fundamental reorientation of the social contract within which millions of Americans work. Most notably, the rise of online temping, freelancing and independent contracting means that millions of workers increasingly lack access to the once-ubiquitous labor standards that defined the ‘good jobs’ economy that came out of the New Deal era. Gig workers, for example, retain limited access to income security protections, such as unemployment insurance, workers’ compensation and disability payments. Minimum-wage and antidiscrimination laws may not apply to such contractors, nor do they often receive retirement benefits such as Social Security. And for that matter access to credit, training and credentialing becomes even more tenuous than elsewhere in the economy.”

“In short, the expansion of the gig economy-left to itself-is likely going to contribute to larger trends that are reducing the share of American workers that can achieve basic economic security through their work.”

Other Interesting Articles

Bloomberg Businessweek

The Economist

Bloomberg – Banks Passed Up Uber Share Sale on Lack of Data 11/7

FT – The Cohen model of making billions loses its appeal 11/4

FT – China replaces finance minister Lou Jiwei 11/6

FT – Japanese investors grapple with wedding versus funeral bet 11/7

FT – Vices and virtues of Uber’s insolence 11/7

FT – What does China’s latest intervention mean for Hong Kong? 11/7

FT – The Hillary Clinton hate campaign has twisted America 11/7

FT – Mozambicans feel the pinch as ‘tuna bond’ debt crisis deepens 11/7

FT – Oil demand might peak in just over a decade, says Opec 11/8

FT – China card curbs stem cash flow to Hong Kong insurance plans 11/8

FT – Lessons from the Mozambique meltdown 11/8

FT – Sports rights: The fight to keep the fans on side 11/8

FT – Infineon breaks Rubik’s Cube world record 11/9

NYT – Young Adolescents as Likely to Die From Suicide as From Traffic Accidents 11/3

NYT – Turkey’s Post-Coup Crackdown Targets Kurdish Politicians 11/4

NYT – ‘We Almost Have Riots’: Tensions Flare in Silicon Valley Over Growth 11/4

WSJ – China Faces Looming Bulge in Currency Pressure 11/4

WSJ – Office Pileup Gets Worse in Houston 11/8

WSJ – Warning Light Flashes on Auto Loans 11/8

WSJ – With Financing Scarce, Chinese Developers Get Too Clever by Half 11/10

October 28 – November 3, 2016

Declining global trade. Chinese bank loan loss provisions. Pending auto loan crisis?


Special Reports / Opinion Pieces


    • “Earlier this year, One Kings Lane, the online home goods retailer once worth almost $1 billion, sold itself to Bed Bath & Beyond, one of the companies it was supposed to displace, for just $12 million. Jawbone, the maker of sleek wearable fitness hardware once seen as a threat to Apple’s, has seen its value fall 50%. Since 2015, researcher CB Insights has counted 80 ‘down rounds,’ instances of a startup accepting a reduced valuation to raise more venture funding. ‘There was this fog hanging over Silicon Valley in 2001,’ says Botha (Roelof Botha, partner at VC firm Sequoia Capital) referring to the last big tech bust. ‘And there’s a fog hanging over it now. There’s no underlying wave of growth.'”
    • Yet at the same time VC funds are flush. “A few years ago, a big VC fund might have had about $500 million to play with. Today, ‘big’ means well over $1 billion. VCs raised $12 billion in the first quarter of 2016, which the industry’s trade group says marked a 10-year high. ‘The world has never seen an investment climate like this one,’ says Bill Gurley, a partner with Benchmark who led the firm’s investment in Uber. ‘It’s hard to express how much money is out there.'”
    • As Benchmark’s Gurley puts it “we’re in a slow correction. You might see a unicorn go down once a quarter.”
    • “Grocers are struggling to lure e-commerce-loving millennials into their aisles amid what experts say is a permanent shift in shopping patterns among consumers.”
    • “I don’t think we’ve seen shopping change so dramatically ever. Those things in the past that have been real drivers for grocery in terms of freshness and quality aren’t the key drivers for millennials.” – Marty Siewart, senior VP for consumer and shopper analytics at Nielsen
    • “Consumers between 25 and 34 years of age last year spent an average of $3,539 on groceries, about $1,000 less in inflation-adjusted dollars than people that age spent in 1990, federal data shows.”
    • Of course it doesn’t help that “the more than 75 million Americans born in the 1980s and 1990s are also delaying marriage and childbearing, milestones that traditionally lead people to start making big trips to the grocery store.”
    • wsj_grocery-slump_10-27-16
    • Austria just sold 70-year bonds at a yield of 1.5%. On the same day the country also sold 7-year bonds at a sub-zero yield.
    • ft_annual-sales-of-long-dated-debt_10-27-16
  • Peter Wells of the Financial Times pointed to the ‘real’ reason why AIA has a fall in insurance policies underwritten.
    • “UnionPay customers from the mainland (China) will only be allowed to use their credit and debit cards to buy accident, illness and tourism-related insurance policies in Hong Kong, the state-backed bank card provider said on Saturday through one of its subsidiaries.”
    • Why the sudden change…
    • “UnionPay said it ‘has observed a significant increase in overseas insurance transactions by cards issued from mainland China’ and is now preventing its mainland customers from buying insurance products that include ‘investment-related contents.'”
    • “The purchase of insurance products overseas, particularly in Hong Kong, had become a popular way to move money offshore, particularly after the devaluation of the renminbi in August 2015.”
  • Danny Hakim of the New York Times covered the new findings about genetically modified crops and how the results haven’t quite lived up to the promises.
    • The skinny: “genetic modification in the United States and Canada has not accelerated increases in crop yields or led to an overall reduction in the use of chemical pesticides.”
    • “An analysis by The Times using United Nations data showed that the United States and Canada have gained no discernible advantage in yields – food per acre – when measured against Western Europe, a region with comparable modernized agricultural producers like France and Germany. Also, a recent National Academy of Sciences report found that ‘there was little evidence’ that the introduction of genetically modified crops in the United States had led to yield gains beyond those seen in conventional crops.”
    • “At the same time, herbicide use has increased in the United States, even as major crops like corn, soybeans and cotton have been converted to modified varieties. And the United States has fallen behind Europe’s biggest producer, France, in reducing the overall use of pesticides, which includes both herbicides and insecticides.”
  • Mary Childs of the Financial Times discussed some of the changes afoot in the private equity business.
    • A new trend is taking place in the private equity world, one that is promising to hold investor money for longer periods in return for less returns.
    • Granted, “private equity has become a victim of its past success: its strong performance relative to other asset classes looks increasingly difficult to replicate as high valuations and stiff competition among private equity groups make new deals more expensive.”
    • Thus new funds are “offering investors vehicles that will run for 14 years or more, rather than the traditional 10 years, and offer 15% returns or less, lower than the 20% in a typical fund.”
    • “Already the industry’s average returns are slipping below the 20% mark: for 2015, buyout funds generated an average internal rate of return of 17.1%, according to data from Preqin.”
    • “Fund managers are deploying less money, sitting on a record $839bn of so-called dry powder at the end of the third quarter, according to Preqin. Many buyout chiefs say they are modelling potential investments with the expectation that they will be selling into a lower stock market.”
    • Speaking to the timelines of these new funds, the intent is to match investment returns to investor’s long-term liabilities and to avoid forced sales due to too-short investment time horizons.
  • Michael Hiltzik of the Los Angeles Times posted about a recent agreement between Dalian Wanda Group and the City of Beverly Hills on a real estate development that sets quite a precedent – good or bad depending on which side you’re on.
    • The benefits of being a city where entitled land is scarce and money flows abundantly… or a further sign that this real estate development cycle has been going on too long such that municipalities can continue to up the ante.
    • The City of Beverly Hills and the Dalian Wanda Group (large Chinese developer) just inked perhaps the most advantageous deal to a municipality – ever.  Granted, Dalian Wanda wouldn’t have done the deal if it didn’t make sense to them – at least on paper.
    • “The terms are still subject to approval by the Beverly Hills City Council, which will launch a three-day round of hearings on the development Monday. The terms include a doubling of the upfront payment from Wanda to the City from $30 million to $60 million; a quadrupling of environmental mitigation and sustainability fees to 1.25% from 0.45% of the sale of any portion of the development, including the condos, and an additional 2% of any subsequent sale; and hotel occupancy surcharge of 5%, on top of the city’s statutory transient occupancy tax of 14%.”
    • “The city says it expects the terms to yield $820 million in revenue over 30 years, an increase of $560 million over the previous terms.”


FT – Spanish unemployment rate below 20% for first time in 6 years – Tobias Buck 10/26


Visual Capitalist – Prices Are Skyrocketing, But Only For Things You Actually Need – Jeff Desjardins 10/28


FT – Solar industry rollercoaster offers a bumpy ride – Ed Crooks 10/30


FT – US mobile advertising surges 89% – Anna Nicolaou 11/1


Daily Shot – Nigeria’s FX Reserves 11/1


Economist – Angling for the future of TV 10/29


Bloomberg – What Rising Bond Yields Are Trying to Tell Us – Mark Gilbert 11/3


FT – Millennials drive Chinese online consumer boom – James Kynge 11/2



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

A Little-Noticed Fact About Trade: It’s No Longer Rising. Binyamin Appelbaum. New York Times. 30 Oct. 2016.

“…Trade is no longer rising. The volume of global trade was flat in the first quarter of 2016, then fell by 0.8% in the second quarter, according to statisticians in the Netherlands, which happens to keep the best data.”

“It is the first time since World War II that trade with other nations has declined during a period of economic growth.”

Further, “the United States is no exception to the broader trend. The total value of American imports and exports fell by more than $200 billion last year. Through the first nine months of 2016, trade fell by an additional $470 billion.”

“In better times, prosperity increased trade and trade increased prosperity. Now that wheel is turning in the opposite direction.”

Worse, “there are also signs that the slowdown is becoming structural. Developed nations appear to be backing away from globalization.”

“The World Trade Organization said in July that its members had put in place more than 2,100 new restrictions on trade since 2008.”

“During the 1990s, global trade grew more than twice as fast as the global economy. Europe united. China became a factory town. Tariffs came down. Transportation costs plummeted.”

“But those changes have played out. Europe is fraying around the edges; low tariffs and transportation costs cannot get much lower. And China’s role in the global economy is changing. The country is making more of what it consumes, and consuming more of what it makes. In addition, China’s maturing industrial sector increasingly makes its own parts. The International Monetary Fund reported last year that the share of imported components in products “Made in China” has fallen to 35% from 60% in the 1990s.”

“The result: The I.M.F. study calculated that a 1% increase in global growth increased trade volumes by 2.5% in the 1990s, while in recent years, the same growth has increased trade by just 0.7%.”

Now, there is excess capacity in the world’s shipping lines. “In 2009, the world’s cargo lines had enough room to carry 12.1 million of the standardized shipping containers that have played a crucial, if quiet, role in the rise of global trade. By last year, they had room for 19.9 million – much of it unneeded.”

Further, automation is making it difficult, if not impossible, for developing nations to follow in China’s footsteps. “Dani Rodrik, a Harvard economist, calculates that manufacturing employment in India and other developing nations has already peaked, a phenomenon he calls premature deindustrialization.”

It doesn’t help that the benefits of globalization were oversold and that now nativists and protectionists are overstating the downsides.

China banks in stand-off with regulators on loan loss provisions. Yuan Yang. Financial Times. 30 Oct. 2016.

“China’s banks are in a deepening stand-off with regulators over the level of provisions they must make to protect against loan defaults as bad debts continue to climb.”

Current provisions call for a loan loss provision ratio target of 150%.  As it stands at least two of China’s largest four banks are below the coverage ratio. As of the third quarter Industrial and Commercial Bank of China has a coverage ratio of 136% (down from 143% in the second quarter). And that’s based on officially recognized non-performing loans.

“Officially, 1.8% of all Chinese loans are non-performing, although the credit rating agency Fitch puts the true figure at more than 15%. Following a huge credit boom, the outstanding amount of non-performing loans doubled in the two years before June 2016, reaching Rmb1.4tn.”

Hence, will the banks have to raise their loan loss reserves or will the regulators reduce the target ratio?

As Zhang Yingchao, a banking analyst at NSBO China – an investment bank, aptly puts it “setting standards is a tussle between the banks and the regulators. Who gets the upper hand depends on the state of the economy. If increasing the credit supply is necessary to meet the growth target of 6.5-7%, then the regulators will need to relax standards.”

Fears rise over auto loan crisis as repo men see sales’ dark side. Joe Rennison. Financial Times. 1 Nov. 2016.

“Repossessions in the US hit 1.6m in 2015, the third highest level on record for data going back 20 years, falling short of the 1.8m and 1.9m peaks seen in 2008 and 2009, respectively.”

“That number is predicted to rise to 1.7m this year, according to Tom Webb, chief economist at Cox’s Automotive.”

However, one of the key differences between this cycle and last is that whereas many of the repossessions in 2008 and 2009 were from fraudulent schemes “people renting cars under a fake name and not returning them, for example,” this time there has been a boom in subprime auto loans and people just not able to repay their loans.


The auto market is booming and correspondingly or really as a result of the growth in the auto loan market. “The auto loan market has grown from $750bn in 2011 to $1.1tn at the end of June, according to data from the US Federal Reserve.”

According to Peter McNally, a senior analyst at Moody’s – the rating agency, “while we have seen a gradual loosening in underwriting in recent years it has gotten to a point now where it is becoming unstable.”

“The subprime auto ABS market has grown to $38.1bn, down slightly from its second quarter high of $41.2bn, according to data from the Securities Industry and Financial Markets Association. Fitch Ratings defines subprime ABS as a deal with expected net losses above 7%. Net losses across subprime auto ABS hit 9.29% in September, according to Fitch – 23% higher than a year earlier.”


“The fear is that if losses continue to climb, investors will stop buying bonds issued by less diversified companies. If their access to funding stops, it could impair the credit quality of the issuer itself, throwing doubt over the quality of existing bonds and ricocheting through the market, raising borrowing costs for other issuers as well.”


Other Interesting Articles

Bloomberg Businessweek

The Economist

FT – Apple’s profits in China down by almost a fifth 10/26

FT – China pension reform to send flood of cash into domestic equities 10/26

FT – China property developers feel chill as cooling measures bite 10/27

FT – Credit Suisse plans cost-sharing project with another bank 10/29

FT – Russia prepares for deep budget cuts that may even hit defense 10/30

FT – Japan insurers prepare for age of self-driving vehicles 10/30

FT – China’s strongman rule sets a test for the west 10/30

FT – Venezuela’s crisis comes to a head in the streets 10/30

FT – Shell and BP warn not to expect strong oil rebound in 2017 10/31

FT – Forget the IMF: global chemicals are your guide to future performance 11/1

FT – China’s corporate governance standards fall 11/2

FT – Egypt devalues currency and begins free float to secure IMF funds 11/3

NYT – China’s Communist Party Declares Xi Jinping ‘Core’ Leader 10/27

WSJ – The Worrying Weak Point for Super-Strong Bonds 10/28

WSJ – Why Everything Isn’t All Right With China’s Economy 11/1

WSJ – More Americans Leave Expensive Metro Areas for Affordable Ones 11/1