Month: December 2016

December 23 – December 29, 2016

A review – how India and Indonesia have gone about chasing tax revenue. Global bond sales hit a record in 2016 led by corporations. US housing gains highlight the growing economic divide.

First, Happy New Year! 


Special Reports / Opinion Pieces


  • Yuan Yang and Sherry Fei Ju of the Financial Times highlighted how China city governments have collided with Didi over migrant drivers.
    • “China’s ride-sharing platforms face their biggest regulatory test so far after city governments in Beijing and Shanghai approved a policy of ‘local cars, local drivers’ on Wednesday.”
    • “Migrants from rural China constitute the core of the workforce for not only car-hailing apps but some of the country’s largest internet groups including Alibaba and Meituan-Dianping, all of which rely on low-paid drivers and couriers.”
    • “The regulations say you can be fined Rmb10,000 ($1,440) if you are discovered. But 99% of passengers don’t want us to be checked, or they wouldn’t be able to take taxis, so they won’t report us.” – Mr. Huang, a driver in Shanghai originally from Jiangsu
    • “About 40% of Beijing’s and Shanghai’s combined 43m residents are from outside the city, according to the cities’ statistics bureaus.”
    • “China has over 270m rural migrants who have moved to cities to seek a better livelihood. But they are kept under firm restrictions by China’s internal passport rules, the hukou system, under which people receive different benefits depending on whether they have an urban or rural registration and where they are registered.”
    • So two things: 1) you have a huge section on the economy that operates at an equilibrium that requires subsidized labor and investor losses in order to provide products at a price point where consumers will pay for them, and 2) there are millions of people that are forced into a “second-class” citizenship (with rights similar to those of illegal immigrants in the US) by a registration system that seeks to control migration patterns.  Think about it.
  • Tom Mitchell of the Financial Times covered how the lease renewals in Wenzhou have eased homeowner fears.
    • “In an announcement at the weekend, the land ministry said that 20-year residential property leases in the eastern city of Wenzhou would be automatically extended without charge, ending speculations that homeowners would face steep renewal fees equivalent to one-third of their property’s value.”
    • “Ever since Deng Xiaoping’s landmark economic reforms were introduced in the early 1980s, allowing people to buy land and property for the first time since the 1949 communist revolution, titles in the world’s most populous country have been limited by fixed-term leases.”
    • Wenzhou was the first to the fixed-term leases to expire – clearly garnering national and global interest.  Granted, the city is unusual with its 20-year leases versus the norm of 70-years; “the shorter leases were introduced in Wenzhou in the 1990s to make properties more affordable.”
    • The bigger issue at hand is the moral hazard that it represents. Presumably buyers believed that the government would come to their rescue at the end of their lease terms – probably the punters selling the units assured the buyers of the same – and low and behold, they did.  While the lease rollovers represent a huge revenue source for municipalities, actually letting market forces take hold would put many homeowners in dire straits when their leases expire.  Further such a course of action would send shivers across the country when all property owners suddenly realize how precarious their land tenures are… which of course would limit property appreciation – likely to send it down meaningfully, and so on and so forth.
    • To be sure the special case of Wenzhou “does not signal a final resolution of the issue.” The government is “studying a new law that would regulate lease renewals nationwide.”
  • Bruce Einhorn, Peter Pae, Jungah Lee, Kanga Kong, and Abhishek Vishnoi of Bloomberg Businessweek featured the current unrest in South Korea as the country seeks to rein in its corporate elite.
    • The recent impeachment of South Korean President Park Geun-hye and the scandal surrounding it has brought to the surface the anger and frustration “of a population struggling with the transition to a slow-growth era.”
    • “Economists expect South Korean gross domestic product this year to expand 2.7%, marking the first five-year period with growth below 3.5% since the 1950s. Manufacturers are suffering from the slowdown in China, South Korea’s top export market, and soft demand elsewhere. Export growth has declined in 21 of the past 23 months. Youth unemployment is 9.3%, in part because rigid labor laws discourage employers from hiring young graduates. ‘ Without some serious restructuring,’ says Emily Dabbs, an economist for Moody’s Analytics in Sydney, the outlook ‘is going to be quite weak.'”
    • “Monthly household incomes for urban salary and wage earners grew 1.7% in the third quarter from a year earlier. As recently as 2012, income growth regularly topped 5%.”
    • Worse, “many jobs are low-paying temporary positions without the insurance, pensions, and other benefits regular workers enjoy. Temporary employees, who make up one-third of the workforce, earn on average about 41% of what a full-fledged employee does.
    • “Since the end of military rule in the late 1980s, an unwritten social compact has allowed corruption among the political and corporate elite as long as ordinary Koreans enjoyed solid economic growth.”
    • This story line is being played out all around the globe…


WSJ – Paying to Lend: The Negative-Yield Story of 2016 – Richard Barley 12/27


WSJ – The Mystery of Japan’s Stagnant Wages – Anjani Trivedi 12/27


WSJ – As Home Prices Rise, Flippers Make a Comeback – Kirsten Grind and Peter Rudegeair 12/28


WSJ – Daily Shot: FRED Declining US Homeownership Rate 12/28


WSJ – Daily Shot: FRED US Home price growth vs. Wage growth 12/28

Doesn’t help that rents and home prices are outpacing wage growth


WSJ – Daily Shot: FRED US Housing Cost Inflation 12/28


WSJ – Daily Shot: Prescription Drug Price Inflation 12/28

Another place inflation has been taking off


WSJ – Daily Shot: US Food Deflation 12/28

And a place where it is not


WSJ – Daily Shot: Declining Cost of Chinese Imports 12/28


WSJ – Daily Shot: Value of US Manufacturing Shipments 12/28


WSJ – Daily Shot: China Central Government Stimulus 12/28

As things are slowing down in China, the government has been stepping up its stimulus


WSJ – Daily Shot: China Private investment growth 12/28

While the private sector has been hitting the breaks


WSJ – Daily Shot: China 20yr Government Bond Yield 12/28

Doesn’t help that the cost of funds is jumping


WSJ – Daily Shot: China AA+ Corporate Bond Yield (Index) 12/28


WSJ – Daily Shot: Family Incomes spent on childcare 12/28

I can relate to this.


Comstock’s – California to Pay Billions More After CalPERS Cuts Assumed Rate – Romy Varghese 12/29


Bloomberg Businessweek – Mapping the Growth of Disability Claims in America – Brendan Greeley 12/16


Visual Capitalist – These 5 Big Companies Control the World’s Beer – Jeff Desjardins 8/4



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

How India and Indonesia are chasing tax revenue. Erwida Maulia and Kiran Sharma. Financial Times – Nikkei Asian Review. 25 Dec. 2016.

The Financial Times put together an interesting article on Indonesia’s and India’s efforts to increase their tax revenue base.

In Indonesia, they have “calculated that political stability and a dramatic drop in the tax rate could help to bring home an estimated 11,400tn rupiah ($851bn) parked overseas.”

To help repatriate this wealth, Indonesian President Joko Widodo has launched a massive tax amnesty campaign. “More than 10,000 people a day answered the president’s pitch in September: declare assets now and take advantage of a discounted tax rate – as little as 2% compared with 25% – and, in turn, be part of Indonesia’s future.”

The good news for some of this money is that “beyond the new low rates, the amnesty doesn’t require tax officials to trace the origins of the assets and it prohibits the disclosure of information, even to law enforcement.”

Granted, not everyone is happy about the repatriation. “The efforts to corral big assets unsettled Singapore, one of Asia’s leading financial centers, which is estimated to hold more than $200bn in assets for Indonesians. Account holders who notified financial institutions in Singapore that they would apply for the amnesty suddenly found the financial police involved. Singapore policy and the Monetary Authority of Singapore, the financial industry watchdog, had informed banks there to file suspicious transaction reports whenever anyone sought to participate in the amnesty.”

“According to financial sources, Singapore banks offered some of the wealthiest Indonesians better interest rates if they would declare but not repatriate their money.”


“As of December 19, 141tn rupiah had been committed for repatriation, just 14% of the target. The number of participants declaring assets, though, has been far more encouraging. From July to mid-December, there were 508,000 participants and a total of 4,035tn rupiah of assets declared, equal to 30% of the country’s gross domestic product.”

“While Indonesia has pursued a single, clear and well-publicized program to find hidden assets, India has launched a multi-faceted assault to find revenue in a country where only 1% of the 1.25bn population pays income tax.”

“It has made for a tumultuous year for nearly every Indian household.”

“From June to September, the government embarked on a much-publicized program for people to self-declare secret assets. The first such tax amnesty in nearly 20 years drew in a disappointing 673bn rupees ($9.93bn) from 71,726 people. Soon after, Modi (Prime Minister Narendra Modi) authorized raids of high-net-worth individual’s homes and offices.”

And then “November 8 was the game-changer. From midnight, the government declared a withdrawal of high-denomination notes, sucking out 86% of the currency in circulation by value from a predominantly cash economy. People were given until December 30 to deposit the banned notes into their bank accounts.”


The affects are still being felt, especially as new notes have been slow in their roll out. “Former Prime Minister Manmohan Singh, an economist, said the national income could decline by 2%.”


Hopefully it was worth it.

Bottom line, “sophisticated investors and wealthy families will always be searching for privacy and confidence in how their money is secured and governments will be hard pressed to keep pace. ‘Thinking of Indonesia in 1998 or India’s latest currency reforms gives you a good idea as to why people in these two countries want a safe place for their money,’ said Jason Sharman, professor of governance and public policy at Griffith University in Australia. ‘Offshore is often told as a story of greed, which it often is, but it’s even more a story of fear. Often justified fear.'”


Corporates lead surge to record $6.6tn debt issuance. Eric Platt. Financial Times. 27 Dec. 2016.

“The bond rally that dominated the first half of the year helped entice borrowers that issued debt via banks to take on just over $6.6tn, according to data provider Dealogic, breaking the previous annual record set in 2006.”

“Companies accounted for more than half of the $6.62tn of debt issued, underlining the extent to which negative interest-rate policies adopted by the European Central Bank and the Bank of Japan, as well as a cautious Federal Reserve, encouraged the corporate world to increase its leverage.”

“While US government bond yields touched their low in July, the prospect of Mr Trump cutting taxes and injecting fiscal stimulus has accelerated a move higher in interest rates that some investors fear will make debt burdens harder to bear in 2017.”

“After touching a record low of 1.32% in July, the yield on the 10-year US Treasury – an important benchmark for corporate borrowing costs – has surged more than a percentage point to 2.57%.”


“With the universe of negative-yielding bonds touching almost $14tn at one point, money managers were willing to stomach lower returns. The year’s debt sales were buoyed by China and Japan-based issuers, up 23% and 30% respectively, from a year earlier.”

“Investors say they expect 2016 is likely to prove a high-water mark for debt issuance in this cycle, with the Fed forecast to raise rates further and question marks growing over the future of bond-buying programs from the BoJ and the ECB.”

Housing Gains Highlight Economic Divide. Laura Kusisto. Wall Street Journal. 27 Dec. 2016.

“The volatile housing market of the past 15 years is widening the divide between pricey urban and coastal areas and more affordable inland regions, creating large swaths of winners and losers based largely on geography.”

While the S&P CoreLogic Case-Shiller National Home Price Index is up 5.6% in the last twelve months through October, however, “adjusted for inflation, prices are still roughly 15% below the peak.”

“Much of the spoils have been concentrated on the high end. A study by Weiss Analytics, a housing-data firm, found homes in ZIP Codes where the median value is $500,000 to $1 million are now worth 103% more than they were 16 years ago, before a boom in the mid-2000s was followed by the worst housing crash since the Great Depression. Home prices in those areas have shot up 39% since the bust.”

“In ZIP Codes where the median home was worth $100,000 to $150,000, prices have risen 16% since the trough of the market and are now worth 24% more than they were in 2000.”


Adding a political lens to this, “in counties that voted for Mr. Trump, home prices have been largely flat for the past 15 years, according to a county-by-county analysis of home values and voting patterns by real-estate tracker Zillow.”

“In January 2000, just before the housing market’s boom-bust cycle began, homes in counties that voted for Mrs. Clinton in 2016 were worth $36,000 more than those in the counties that voted for Mr. Trump, according to the Zillow analysis. Today, the gap stands at almost $97,000.”

“The difference is even starker in counties that changed how they voted in this election. In counties that swung for Mrs. Clinton, homes are worth about $147,000 more than homes in counties that swung for Trump.”

Other Interesting Articles

Bloomberg Businessweek

The Economist

Bloomberg – Forget Rogue One, Disney Is Rebuilding the Entire Star Wars Universe 12/15

Bloomberg – It Was Going to Be the Year of the REIT 12/27

FT – Five industries under threat from technology 12/25

FT – Cristina Fernandez charged in Argentina corruption case 12/27
FT – Toshiba writedown warning revives financial stability fears 12/27

FT – China debt: long time coming 12/27

FT – Bond investors must accept low-for-long era is over 12/27

FT – US hits Russia with tough sanctions over election hacking 12/29

Investment News – Coming off a disastrous 2016, sales of nontraded REITs could bounce back in 2017 12/27

Naked capitalism – A Tale of Two Retirements: The Great Divide Between CEOs and Everyone Else 12/28

NYT – Growth of U.S. Population Is at Slowest Pace Since 1937 12/22

NYT – Obama Strikes Back at Russia for Election Hacking 12/29

WP – The Arctic is showing stunning winter warmth, and these scientists think they know why 12/23

WSJ – Italy’s Bank Rescue Is a Precarious Balancing Act 12/23

WSJ – Xi’s Power Play Foreshadows Historic Transformation of How China is Ruled 12/26

WSJ – The Real Story About Rising Home Prices 12/26

WSJ – Plain-Vanilla Real Estate Gains Clout With Chinese 12/27

WSJ – Aluminum Billionaire Planning Escape From China: Lawyer 12/28

WSJ – China’s Currency Drops But Pressure Still Builds 12/28


December 16 – December 22, 2016

China no longer the largest US creditor – Japan is again. China capital outflows, have you looked at the bank loans? Brazil’s Odebrecht just got served the FCPA’s largest settlement.

Happy Holidays!


  • FT – Ferocious competition roils private equity market 12/17. Deal volume is down, acquisition multiples are up (“acquisitions made in the first half of this year required private equity managers to pay on average 10 times the cash flow of a target company, well above the previous peaks for deal valuations in 2006 and 1999”), dry powder is at a record closing in on $1tn, and future returns are looking skinny, but then again consider your options in stocks and bonds.
  • FT – Private equity: lowering the bar 12/20. Following on the previous headline, despite – or rather because of – lower projected returns, top tier private equity groups are able to dictate terms on investors. In some cases lowering the hurdle rate from 8% to 6% or in some cases just removing them altogether…
  • NYT – Calpers Cuts Investment Targets, Increasing Strain on Municipalities 12/21. Calpers is reducing benefits and lowered its return assumptions from 7.5% to 7.0% to be phased in over three years. Oh, and “shifting expectations down to 7% will force the State of California to contribute an additional $2 billion a year for state workers…”

Special Reports / Opinion Pieces

  • FT – The Opec agreement: Russia’s role adds a geopolitical twist – George Abed 12/15
    • “The three-way oil agreement involving Russia, Saudi Arabia and its GCC neighbors, and Iran, who in combination produce nearly a third of global supplies, is likely to have tamed the wild gyrations of the oil market, at least for a time. More significantly, the accord may have given rise to an uneasy alliance of convenience which may have broader implications, for the future of the Middle East as much as for the global oil markets.”


  • Andres Schipani of the Financial Times illustrated how hyperinflation is at Venezuela’s doorstep.
    • Last week the Venezuelan President Nicolas Maduro “announced plans to scrap the ubiquitous 100 bolivar bill, which makes up about half the country’s banknotes but is increasingly worthless as annual inflation is forecast to top 1,600% next year.”
    • “The plan, which the government insists is necessary to fight currency hoarders and counter an ‘economic war’, is to replace the old money with new high denomination notes, including 20,000 bolivar bills.”
    • However, due to looting, riots, and protests that accompanied this initiative, the president has extended the currency’s use until sometime in the new year.  This of little comfort with monthly inflation above 50% and where it is difficult to obtain high denomination notes.
    • “Caracas-based consultancy Ecoanalitica said the range of notes reflected inflation of 17,011% since the older notes were first launched in 2008.”
  • Chris Kirkham of The Wall Street Journal highlighted that the percentage of young Americans living with their parents is at a 75-year high.
    • “Almost 40% of young Americans were living with their parents, siblings or other relatives in 2015, the largest percentage since 1940, according to an analysis of census data by real estate tracker Trulia.”
    • wsj_percentage-of-18-34-year-olds-living-at-home_12-21-16
    • “The result is that there is far less demand for housing than would be expected for the millennial generation, now the largest in U.S. history. The number of adults under age 30 has increased by 5 million over the last decade, but the number of households for that age group grew by just 200,000 over the same period, according to the Harvard Joint Center for Housing Studies.”
    • Why? “Analysts point to rising rents in many cities and tough mortgage-lending standards as the culprit…”
    • Well at some point this back log is likely to play out with an increase in household formation and housing starts. As it stands, “economist project the historically large millennial generation will more than double its current number of households through 2025.”
  • Rachel Sanderson, James Politi, and Martin Arnold of the Financial Times covered the Italian bail out of the world’s oldest bank – Monte dei Paschi di Siena bank.
    • “Monte dei Paschi di Siena is to be rescued by the Italian state using a new 20bn bailout package, as a last-gasp private sector rescue plan for the world’s oldest bank looked set to fail, forcing losses on bondholders.”
    • “The state funds to rescue the bank would come from a €20bn package approved by both houses of parliament on Wednesday that could be used to bail out several of Italy’s most fragile banks. Goldman Sachs estimates they need €38bn to be adequately capitalized.
    • Granted, not everyone is pleased. “A backlash against a taxpayer-funded bailout of Italy’s weakest lenders has already begun. Codacons, a consumer lobby group, estimated 20bn ploughed into Italy’s failing lenders would cost each Italian family 833.”


WSJ – Daily Shot: Vancouver Housing Market Correction 12/18


WSJ – Daily Shot: Declining income mobility in US 12/18


Visual Capitalist – 75 Years of How Americans Spend Their Money – Jeff Desjardins 12/19


WSJ – Daily Shot: S&P vs. Treasury Spread 12/20


FT – China’s ‘airpocalypse’ hits half a billion people – Yuan Yang 12/19


WSJ – Daily Shot: Change in Mortgage Rates Since Election 12/21


WSJ – Daily Shot: Percentage of Adults Without Children in House 1967 & 2016 12/21


FT – Hedge fund fees take a trim – Lindsay Fortado 12/21



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

China cedes status as largest US creditor to Japan. Tom Mitchell, Joe Rennison, and Eric Platt. Financial Times. 16 Dec. 2016.

“Beijing’s ownership of US Treasuries fell by $41.3bn to $1.12tn in October, according to data from the US Treasury released on Thursday – the sixth straight month of decline. Japan’s holdings fell by $4.5bn to $1.13tn for the same period.”


According to Eswar Prasad, an economics professor at Cornell University and former IMF director for China, “this pattern is unlikely to be reversed in the near future, especially with US and Chinese economic fortunes and monetary policy stances continuing to diverge. The days of China providing abundant and cheap financing for US budget and current account deficits through the purchases of Treasury securities may have come to an end.”


“China and Japan account for 37% of the total $6tn of holdings tracked by the Treasury and Federal Reserve.”

China capital outflows: bank loans dwarf foreign deals. Gabriel Wildau and Don Weinland. Financial Times. 17 Dec. 2016.

“While an overseas buying spree by Chinese companies has grabbed headlines, more mundane activity such as trade finance and corporate cash management are a much bigger strain on China’s foreign exchange reserves, analysis of official data shows.”


“‘Several hundred billion in outflows are simply associated with repayment of existing loans,’ said Brad Setser, a senior fellow at the Council on Foreign Relations and former US Treasury official.”

“Foreign bank claims on China, a broad measure of cross-border lending, have fallen by $305bn in the 18 months through June this year, according to the most recent figures from Bank of International Settlements, showing how banks are pulling funds from the country. Claims had risen by $643bn in the previous two years.”

“Much of this lending came in the form of trade finance. When the renminbi was appreciating against the dollar, Chinese importers eagerly borrowed in dollars.”


“‘Corporates rushed to raise funding in dollars because interest rates were very low. Now that carry trade is being unwound,’ said Harrison Hu, China economist at Royal Bank of Scotland in Singapore.”

“To be sure, the regulatory focus on corporate deals is a response to a rapid acceleration of outbound FDI. But it also reflects the lower disruption from tightening the reins on foreign acquisitions compared with forcing loan or bond defaults by blocking cross-border debt repayments.”

“‘The cross-border regulations could definitely have an impact on companies that have offshore debt,’ said Xia Le, chief Asia economist at BBVA in Hong Kong. ‘There is a concern that many will have to refinance but at a much higher cost. They will need to issue very high-yielding bonds.'”

Brazil’s gargantuan corruption scandal goes global. Economist. 22 Dec. 2016.

“On December 21st America’s Department of Justice (DoJ) reached a $3.5bn settlement with Odebrecht, Brazil’s biggest builder, and with Braskem, a petrochemical joint venture between that firm and Petrobas. The DoJ alleges that since 2001 Odebrecht and Braskem paid $788m in bribes to officials and political parties in Brazil and in 11 other countries.


“The payoffs brought Odebrecht and Braskem contracts for around 100 projects, many of them to build public infrastructure. Often, governments paid more for the work than they needed to. The DoJ alleges that Odebrecht set up a ‘Division of Structured Operations,’ which ‘effectively functioned as a stand-along bribe department.'”

“The settlement is the biggest yet under America’s Foreign Corrupt Practices Act (FCPA). It is more than double the previous record: $1.6bn paid by Siemens, a German engineering giant, in 2008.”

“Odebrecht has accepted that the appropriate fine for the company is $4.5bn but says it can only afford $2.6bn; the remaining $900m is owed by Braskem.”

Additionally, now the authorities in the 11 countries will have a crack at the two companies.

Either way “Odebrecht is a shadow of its former self. To survive the investigations, it has been retrenching. Over the past three years the company has reportedly laid off 100,000 of its 181,000 employees, most of them since the launch of the Petrobas investigation in March 2014…. Even Odebrecht’s stake in Braskem, which makes up half of the construction firm’s revenues, may be up for sale. That is quite a comedown for a company named in 2010 by a Swiss business school as the world’s best family-run firm.”

Other Interesting Articles

Bloomberg Businessweek

The Economist

FT – Central bank injection soothes China credit squeeze 12/15

FT – China’s exports to the US fall for first time since crisis 12/15

FT – US drugmaker charges 200 times UK price for common worm pill 12/18

FT – Vanke: to our sponsors 12/19

FT – Yield on German two-year debt falls to new low 12/19

FT – Uber racks up $800m third-quarter loss despite China exit 12/19

FT – Italy seeks up to €20bn to prop up fragile lenders 12/19

FT – China’s bull market in bonds on borrowed time 12/19

FT – Lawyers demand Chinese government action to clear smog 12/20

FT – US sues Barclays for fraud over crisis-era loans 12/22

LinkedIn – Reflections on the Trump Presidency, One Month after the Election (Ray Dalio) 12/19

Miami Herald – Miami Beach wants to know if you’re renting your condo on Airbnb 12/15

NYT – How Republics End (Krugman) 12/19

NYT – Hedge Fund Math: Heads We Win, Tails You Lose 12/22

ValueWalk – CalPERS Cuts Retiree Benefits For First Time Ever 12/20

WSJ – China Halts Trading in Key Bond Futures as Panicky Investors Sell Securities 12/15

WSJ – Surging Dollar Upends China’s Huge Bond Market 12/16

WSJ – Platinum Partners’ Executives Charged With $1 Billion Securities Fraud 12/19


December 9 – December 15, 2016

You can be certain that China is doing what it can to buy local. A US municipal pension crisis takes center stage in Dallas. Yeah, interest rates are going up – oh wait, what…


Special Reports / Opinion Pieces


  • Martin Sandbu of the Financial Times added some context to Opec’s recent production cut agreement with non-Opec member countries and likened it to a swan song.
    • Oil has rallied on recent production cuts agreed to by both OPEC and key non-OPEC countries (Russia).
    • “To top it off, Saudi Arabia’s oil minister signaled a willingness to cut, if necessary, even beyond the agreed limits to prop up prices – an announcement billed by some as a ‘whatever it takes’ moment to warn markets off testing the cartel’s resolve.”
    • However, the oil industry has changed and the US Shale producers are challenging Saudi Arabia for the key swing producer status. Two key facts to consider are 1) “…the break-even price for many shale producers is coming down  surprisingly fast. That means that the level at which shale can replace any OPEC cutback keeps going lower.” And 2) “…that, partly due to its manufacturing-style cost structure, shale is a dispersed private activity. Especially in market economies, it would be very difficult to decide production levels strategically even if one wanted to. So if US shale oil takes over Saudi Arabia as the global market’s swing producer, it will behave in a very different, and largely unstrategic, manner.”
    • “All this means is that OPEC – even with its new non-OPEC friends – has largely used up its ammunition by driving prices to where they are now.”
  • Tom Mitchell of the Financial Times illustrated how Trump’s policy shifts pose ‘unthinkable’ risks for China investors.
    • “We do not take an outbreak of a US-China trade war as our baseline case… But the … US election clearly show[s] how the conventional wisdom in economics may backfire these days. We need to think of previously unthinkable risk scenarios.” – Zhiwei Zhang, economist at Deutsche Bank
    • In regard to new capital controls, the “companies most at risk from the restrictions on dividend remittances include large automakers GM, Volkswagen and Toyota, for whom China is their largest and most profitable market.”
    • “Left to its own devices, the ruling Chinese Communist party would rather not restrict foreign investors’ dividends or punish American multinationals, even if Mr. Trump does indeed upend Sino-US relations…. Last week the party’s politburo identified ‘actively attracting foreign investment’ as one of its key ‘economic work tasks’ for 2017.”
    • “The risk for US multinationals lies in the fact that the Communist party is not entirely free to decide how it reacts to foreign ‘provocations.’ The party’s hand can be forced if an increasingly nationalist public feels the leadership is not being assertive enough in defense of territorial interests.”
    • It would seem the counter-argument would be that the Communist party should be able to pacify its citizens through its control of the media and propaganda apparatus, but as we’ve seen state-side, false news spreads far-and-wide and can affect people’s beliefs and behaviors.


FT – The ECB, bond buying and the capital key: a Q&A – Elaine Moore 9/7


FT – Casino stocks jolted by Macau ATM limit reports – Peter Wells 12/8


FT – Amazon’s no-checkout store threatens death of the cashier – Mark Vandevelde and Lindsay Whipp 12/8



WSJ – Daily Shot: BAML EM High Yield Index (Spread) 12/9

  • “Despite higher bond yields, the global chase for yield continues.”


Bloomberg – Good Luck Privatizing the American Dream – Mark Whitehouse 12/12


WSJ – The Simple Truth About China’s Economy – Nathaniel Taplin 12/13


Bloomberg – Tokyo Regains Costliest City for Expats Title as London Drops – David Roman 12/14



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

South Korea, Germany at risk from China tech rise. James Kynge. Financial Times. 13 Dec. 2016.

According to a recent report by The Mercator Institute for China Studies (Merics), a Berlin-based think-tank, the “Made in China 2025” plan is going to dramatically alter the market for a number of industrial countries that rely on China for a large portion of their sales.

“Industrial countries should have no illusions: Made in China 2025 will elevate a small but powerful group of Chinese manufacturers, dramatically increasing their competitiveness.”

“The Czech Republic, Germany, Italy, Hungary, Japan and South Korea are most at risk from the strategy because each of them derives more than 40% of the value of their industrial output from the high-tech and medium-tech industries that are targeted in China’s plan.”


“The Merics report, which was based on an examination of policy documents, expert journals and newspaper articles, as well as more than 60 interviews with Chinese experts, finds that one clear aim of the industrial strategy is to cultivate domestic champions to replace the sales by foreign companies in China.”

 “Such an intent, the report says, can be seen in a semi-official document called Made in China 2025 Key Area Technology Roadmap, which has been endorsed by Ma Kai, a vice-premier and the official heading the interministerial Leading Small Group for Constructing a Manufacturing Superpower.”


“Indications of strong state support are reinforced by funding being made available to spur Chinese innovation in smart manufacturing. The Advanced Manufacturing Fund, established this year, was approved by the State Council (cabinet) and is charged with spending its Rmb20bn allocation on upgrading the technology of important industries.”

“Another fund, the National Integrated Circuit Fund, has capital of Rmb139bn at its disposal and the Emerging Industries Investment Fund, which was also approved by the State Council, has Rmb40bn to spend on promising domestic companies.”

“The Merics report suggests that such assistance, plus the ability of some companies to undertake acquisitions of industry leaders overseas, is likely to catapult some Chinese manufacturing giants into the vanguard of global technology.”


A stampede for the exit: A Dallas public pension fund suffers a run. Economist. 8 Dec. 2016.

To illustrate the challenges that many municipalities are having or going to have over the coming years, witness what is going on in Dallas where the Mayor is suing the city’s policemen and firefighters to keep them from pulling their funds from the pension fund.

“At the start of the year the fire and police pension fund had $2.8bn in assets. Since then nearly $600m has been withdrawn from the plan, of which almost $500m has been taken out since August 13th. That is an alarming acceleration; in 2015 total withdrawals were just $81m.”

“Even at the start of 2016, the plan was just 45% funded, and was expected to become insolvent within 15 years… The city estimates that the funded ration has fallen to 36% after the withdrawals.”

“The crisis is the result of three linked issues: overgenerous pension promises; the flawed nature of public-sector pension accounting in America; and some bad investment decisions. In order to pay the generous benefits, the scheme counted on an investment return of 8.5% a year, absurdly high in a world where the yield on ten-year Treasury bonds has been hovering in a range of 1.5-3%. So the scheme opted for riskier assets in private equity and property. But the strategy did not work; the value of its investments declined by $263m in 2014 and $396m in 2015, thanks largely to write-downs of those risky assets.”

Dallas is not alone in its pension woes, “the average scheme (in America) was 73.6% funded at the end of 2015, according to the Center for Retirement Research at Boston College. A more conservative accounting approach, as is required of private-sector pension plans, would bring the ratio down further, to 45%.”

However, “the Dallas fund has a particularly big problem. It operates a deferred-retirement option plan (DROP) which allows police and firemen who have qualified for retirement to keep working, while their benefits are kept in a separate account earning an interest rate that has been 8-10% a year. More than 500 Dallas DROP accounts are worth more than $1m; the average account is worth nearly $600,000.”

“In addition, since 1989, retirement benefits have been upgraded using an annual cost-of-living adjustment of 4%.” Instead of say at a consumer-price index of 1-2%.

“Together, the DROP plan and cost-of-living increases make up around half of the scheme’s total liabilities.”

“There are only two possible solutions to the shortfall: put more money into the fund or cut the benefits. A 1984 referendum limits the maximum amount of city contributions – a limit that the city has reached this year. The 2015 scheme report suggested that total annual contributions to the pension fund would need nearly to double, from 37.6% to 72.7% of payroll, in order to close the deficit, and even that would take 40 years. The pension scheme has asked that the city make a one-off payment of $1.1bn in 2018, which the city says would require it to more than double property taxes.”  And of course, “any attempt to reduce past benefits will almost certainly end up in the courts.”

So… invest in even riskier ventures?

Subprime borrowers to feel pinch as Fed raises rates. Alistair Gray. Financial Times. 14 Dec. 2016.

“Subprime borrowers are set to feel the pinch as US banks nudge interest charges up in response to the Federal Reserve’s rate rise, threatening to sour more credit card loans and some types of debt.”

“About 92m consumers who have taken out loans with variable rates, such as credit cards, face higher monthly debt service payments as a result, according to TransUnion, which keeps an anonymized database of 220m borrowers. On average, the monthly increase comes to $6.45 per month.”

“A group of about 9.3m borrowers may be at risk of defaulting on at least one type of loan as a result of the rate increase, according to TransUnion.”

“The forecasts highlight the fragile financial state of many US consumers despite the economic recovery.”

“Sean McQuay, credit expert at NerdWallet, said some households are in for an unpleasant surprise since banks are not required to notify customers that their rates have ticked up in response to a rise in prime rates.”

“Savers, meanwhile, are unlikely to benefit from the Fed’s rate increase. Banks are already awash with deposits, and there is limited competition on these savings rates.”

Rather “the higher rates are expected to be good for banks, since they improve profit margins from lending. Even so, banking executives will be keeping a watchful eye on bad loans.”

Back to the consumers, the rate rise should be marginal unless the Fed does actually raise rates by 0.75 points next year and it is not accompanied by meaningful broad-sector growth in the US. As it is credit card delinquency rates are expected to increase with just the rate increase from this week.


Other Interesting Articles

The Economist

Economist – A house divided: The alarming response to Russian meddling in American democracy 12/11

FT – Macau clarifies that daily ATM withdrawal limits to stay the same 12/8

FT – Airbnb backlash spells trouble for landlords 12/8

FT – China stocks fall by most in months amid crackdown on insurers 12/11

FT – Trump and China: the year of the chicken 12/12

FT – China challenges EU and US over market economy status 12/12

FT – S&P lowers rating for Dalian Wanda Commercial Properties 12/12

FT – Alphaville exclusive: Inside the gig economy 12/12

FT – IEA predicts oil glut will end if producers deliver deal 12/13

FT – Managing the inevitable decline of the renminbi 12/14

FT – Betting on German Bunds 12/14

NYT – Russian Hackers Acted to Aid Trump in Election, U.S. Says 12/9

NYT – Trump Suggests Using Bedrock China Policy as Bargaining Chip 12/11

NYT – Small Investors Join China’s Tycoons in Sending Money Abroad 12/11

NYT – Drug 85 Times as Potent as Marijuana Caused a ‘Zombielike’ State in Brooklyn 12/14

WSJ – Why Would a Chinese Insurance Giant Want to Own a Gas Pipeline? 12/13

WSJ – Tata Drama Bruises Confidence of Once-Loyal Investors 12/14

WSJ – Tesla Could Lose Lead in Electric Cars to Big Automakers 12/15


December 2 – December 8, 2016

Inflation running away in Venezuela. The ‘whale’ in the market is you – or really your proxy by way of the government. Barbarian insurers in China are pissing off the securities regulators. China’s banks hiding more than $2tn in loans. A rise in US interest rates are likely to put the hurt on China (among other places).

I know, lots of featured articles this week…


  • WSJ – China Debts Just Keep on Rolling 12/6. Earlier this year Chinese corporate-bond defaults were taking off and now – all of a sudden – defaults are gone and companies are issuing lots more debt and at lower rates – some of which are the same companies that were on the edge of default; go figure.
  • FT – Profits in China: not safe 12/6. Now that the new rules from China’s State Administration of Foreign Exchange are taking effect, foreign companies are having difficulties repatriating earnings.

Special Reports / Opinion Pieces


  • James Kynge of the Financial Times drew parallels between China’s current liquidity flood and those during the times of the Mongols and Chairman Mao.
    • “The dimensions of China’s liquidity splurge are startling. Ousmene Jacques Mandeng, formerly with the International Monetary Fund, has calculated that between 2007 and 2015 China created 63%, or $16.1tn, of the growth in the world’s supply of money.
    • “China now has more money coursing through the arteries of its economy than the eurozone and Japan combined – and almost as much as the US and the eurozone combined. Since the financial crisis, commentators have focused on the efforts of the US, European and Japanese central banks to print money through ‘quantitative easing’, but China’s output has eclipsed them all.”
    • However, “the main issue is that debts are piling up almost as fast as China generates money to service them, creating what Jonathan Anderson of the Emerging Advisors Group calls a ‘debt funding bubble.'”
    • We shall see where we go from here.
  • Jacky Wong of The Wall Street Journal pointed out that passive investors are getting sucked into Hong Kong market failures by way of their market funds.
    • Bottom line, be very cautious of investing in companies with a thin float (very little shares traded), with a few insiders controlling most of the shares, and a large part of revenues generated from related entities… That goes the same for investing in passive index funds that invest in the same companies…
  • Oshrat Carmiel of Bloomberg highlighted that condominiums in NYC’s tallest luxury tower are being discounted by millions of dollars.
    • “At 432 Park Ave., buyers who signed contracts and completed those purchases this year got price reductions averaging 10%, according to an analysis by appraiser Miller Samuel Inc. In one of the most recent big transactions to close, a penthouse on the 88th floor sold for $60.9 million, a 20% markdown from what developers initially sought, city property records made public Dec. 2 show.”
    • “As new high-end projects mushroom across the skyline, developers of ones that came to market earlier are cutting deals to unload units before competition gets even more heated.”
    • “The building isn’t the only recently completed ultra-luxury tower that’s lowered prices. A few blocks away on 57th Street, a 4,193-square foot apartment at Extell Development Co.’s One57 sold in October for $21.6 million, or 24% off the last asking price, according to listing website StreetEasy.”


WSJ – Daily Shot – 12/02


Economist – Discounting the bull: Stock analysts’ forecasts tend to be wrong in reassuringly predictable ways 12/1

Economist_stock forecast trends tend to be wrong_12-1-16

WSJ – China’s Yuan and the Trillion-Dollar Numbers Game – Nathaniel Taplin 12/7


NYT – A Bigger Economic Pie, but a Smaller Slice for Half of the U.S. – Patricia Cohen 12/6


WSJ – Daily Shot: Bloomberg Barclays US Corporate High Yield Average OAS 12/8



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

Venezuela struggles to tame triple-digit inflation. Andres Schipani. Financial Times. 5 Dec. 2016.

“In an echo of Wiemar Germany, Venezuelan shopkeepers have resorted to weighing banknotes instead of counting them. In defiance of official pegs, the local currency has tanked on the black market, losing a jaw-dropping 62% of its value in November, making bills in circulation in the country virtually worthless.”

“The biggest note in use is the 100 bolivar bill, which is worth roughly 2 US cents on the black market.”

As a result vendors are counting money with weight scales rather than waste the day away counting notes. The rule of thumb “100 notes of any denomination of Venezuela’s currency weigh 110 grams.”

“In the midst of a collapse in the parallel market (there are two local exchange rates – one used for priority imports and the other for everything else) and crippled by triple-digit inflation, the country’s central bank said it would begin circulating higher-denomination notes, including 500, 1,000, 2,000, 5,000, 10,000 and 20,000 bolivares, next week.”

“Carlos Miguel Alvarez, a senior economist with the Caracas-based Ecoanalitica, sees the measure as shortsighted. ‘The new bills may facilitate transactions, but unless the inflationary economic distortions are corrected, they won’t last very long as relief.'”

“Economists list those distortions as currency and price controls, coupled with lower oil prices, mismanagement and a relentless printing press. Venezuela’s central bank has kept inflation data under wraps for a year, but Mr. Alvarez forecast it would top 511% this year. The IMF puts 2016 inflation at 476%.

“Now prices in certain stores can change daily. Some observers are comparing the issuance of larger Venezuelan bank notes with Zimbabwe’s decision to print a new currency to tackle a collapse of trust in its financial system.”

There’s a Big New Investor in Stock Markets: The State. Gregor Stuart Hunter and Kosaku Narioka. The Wall Street Journal. 5 Dec. 2016.

“Two of the world’s most important stock markets have a big new investor: the state.”

“About 30% of all the companies in Japan’s three main equity indexes now count the country’s central bank as one of their top 10 shareholders, according to a Wall Street Journal analysis of data as of the end of September. Six years ago, the Bank of Japan’s presence in the market was trivial.”

“In China, two major state-owned investment funds that are part of the so-called national team have become top 10 shareholders in 39% of listed companies over the past year, according to UBS, which analyzed shareholdings as of the end of September.”

“The new wave of state buying is unique in that it is aimed primarily at propping up markets and economies.” AKA helicopter money.

“Traders say the buying distorts stock values as investors build strategies around government actions rather than company fundamentals. The state’s indiscriminate purchases also might reduce pressure on managements to fix problems that otherwise could weigh on their stock. And then there is the question of how governments will ultimately wind down their holdings, a concern that some say could be deterring investors with a longer-term outlook.”


“The BOJ (Bank of Japan) started buying exchange-traded funds that track equity indexes in December 2010. In July, it boosted its target to roughly ¥6 trillion ($53 billion) worth of ETFs each year. Its holdings had swelled to about ¥13 trillion by late November – equal to around two-thirds of the money held by all Japanese ETFs, according to a Journal analysis of data from the central bank and Morningstar.”

“In China, Central Huijin Asset Management, part of China’s main sovereign-wealth fund, and China Securities Finance Corp., which provides margin financing to the country’s brokerages, have been buying shares to support Chinese stock markets since the rout during the summer of 2015.”

“Any suggestion that the national team is active can produce a frenzy of buying among mom-and-pop investors, said Sean Taylor, chief investment officer for Asia-Pacific at Deutsche Asset Management.”

“Others say the national team’s presence has made the market more dull. Big state-backed funds have been selling down blue-chip shareholdings whenever the market rallies for a few sessions in a row, then buying them back if any selloff steepens. The main Shanghai market has traded in a much narrower range this year than in 2015…”

All this distortion can’t be good.

China’s regulators lose patience with ‘barbarian’ insurers. FT Confidential Research. Financial Times. 6 Dec. 2016.

“The chairman of the China Securities Regulatory Commission (CSRC) has sustained a public attack on aggressive stock purchases on the secondary market in recent months. Liu Shiyu, a former central bank deputy head, has accused this new breed of Chinese corporate raider of using illegal funds and morphing from ‘strangers at the gate to barbarians and finally to industry thieves.'”

“As we (Financial Times Confidential Research – FTCR) have noted, the most aggressive buyers in the A-share markets, such as Anbang Life, Foresea Life and Evergrande Life, have tended to be aggressive sellers of universal life insurance products, short-term life policies that are very similar to wealth management products but with an added life insurance component.”


“Regulators worry that such policies are being sold primarily as high-yielding, short-term investment products, rather than long-term, conservative insurance products, and that their high returns are being achieved by means of high-risk, aggressive stock purchases designed to ramp up stock prices.”

“The insurers need to invest aggressively to match the generous returns offered by universal life insurance products.” However, “slowing sales of such products will pose a challenge in the coming year. The insurers depend on customers rolling over short-term policies to remain solvent; if they do not, insurers will be forced to sell their newly-acquired stakes, undermining their business model.”

The FTCR group does “not think Mr. Liu’s harangue marks an end to this battle. There is too much money involved and some insurance executives reportedly have better connections than their regulators.”

China’s Banks Are Hiding More Than $2 Trillion in Loans. Lingling Wei. The Wall Street Journal. 7 Dec. 2016.

Want to expand credit but not have the liability show up on your balance sheet?  Well, in China make it an “‘investment receivable,’ a loosely regulated category of assets that allows bank officials to set aside little or nothing for potential losses.”

“As of June, 32 publicly traded Chinese banks had a total of $2 trillion in investment receivables, up from $334 billion at the end of 2011, according to a tally by The Wall Street Journal of the latest available information from data provider Wind Information Co.”

“The investments are equivalent to 20% of the same banks’ total loans in dollar terms, up from 6% at the end of 2011. The 32 banks have about 70% of all the banking assets in China.”


“The rapid growth in banks’ off-balance-sheet and investment activities, in essence, means hidden credit risks and could threaten financial safety.” – Shang Fulin, China’s top banking regulator

“Economists at Swiss bank UBS AG estimate as much as $2.4 trillion (16.5 trillion yuan) was ‘missing’ from the broadest measurement of credit disclosed by China’s central bank last year, up from $712 billion (4.9 trillion yuan) in 2014. The discrepancy is largely because Chinese commercial banks use so-called shadow lenders to mask loans as investments, the economists said.”

“If Chinese banks were required to count their investment receivables as loans, the banks would need to raise as much as $212 billion in capital, estimates UBS analyst Jason Bedford. That is not far short of the $262 billion raised by all Chinese banks in 2015.”

“As a result, the analyst said, ‘we expect any capital impact [on banks] to be dragged out over years to avoid a shock to the system.'”

“‘All banks are trying to move [loans] off balance sheets,’ said an official at Bank of Nanjing, nodding to a common belief that in China that Beijing always will stand behind the country’s banks. ‘The only risk we have is sovereign risk.'”

US interest rate rises set to expose China’s frailties. James Kynge. Financial Times. 7 Dec. 2016.

China is readying itself to tighten its monetary policy as the U.S. looks to do the same; however, right now isn’t the best time…

“The vast size of China’s debt mountain – which stands at over 250% of gross domestic product, up from 125% in 2008 – means that even minor increases in short-term interest rates may squeeze corporate activity and precipitate defaults, thereby hampering economic growth.”

“Alex Wolf, emerging markets economist at Standard Life Investments, argues that default risks are rising because more and more corporations are relying on the short-term money market to raise the finance they need to repay existing debts.”


“Estimates by Fitch, the rating agency, reveal a level of pain in corporate China that is not hinted at by official statistics. Some 15% to 21% of loans in the Chinese banking system are already non-performing, Fitch estimates, compared with official numbers of less than 2%.”

In this context, it is unsurprising that foreign exchange reserved declined by nearly $70bn in November.

“The Institute of International Finance, a global association of financial institutions, calculates that in the first 10 months of this year net capital outflows from China totaled $530bn, with October marking the 33rd straight month in which more money left the country than flowed in.”

Property companies are also finding themselves on the short-end of the stick.

“In November, property developers issued only Rmb12bn ($1.7bn) in bonds, down from a monthly average of Rmb86bn from January to September, according to FT Confidential Research, a unit of the Financial Times.”


Other Interesting Articles

Bloomberg Businessweek

The Economist

FT – Meitu: snap appy 12/2

FT – Think twice before picking Uber as a business model 12/4

FT – Foreign companies in China hit by new exchange controls 12/6

NYT – ‘They Are Slaughtering Us Like Animals’: Inside President Rodrigo Duterte’s brutal antidrug campaign in the Philippines 12/7

WSJ – Baby Boomers vs. Millennials: The Uneven Jobs Recovery 12/1

WSJ – Credit Restrictions Cost Home Buyers ‘Deal of a Lifetime’ 12/4

WSJ – India’s Central Bank Can’t Cut It 12/7


November 25, 2016 – December 1, 2016

Another Arab awakening looming. China clamp down on capital flight. Indonesia’s forests are burning.


Special Reports / Opinion Pieces


  • Rachel Sanderson of the Financial Times brought attention to the fears of Italian bank failures with the pending referendum this weekend.
    • “Italy’s banks have 360bn of problem loans versus 225bn of equity on their books.”
    • Should prime minister Matteo Renzi lose a constitutional referendum this Sunday (12/4), there are eight banks in various stages of distress that are rather exposed…not to mention any potential panic that may spread across Europe.
  • Yuan Yang and Hudson Lockett of the Financial Times highlighted that there is a sperm crisis of sorts in China as male fertility is declining.
    • “Last year fewer than a fifth of young men who donated sperm in the inland province of Hunan had sufficiently healthy semen to qualify as a donor, according to a 15-year study of more than 30,000 applicants. In 2001 more than half qualified.”
    • “‘Growing evidence seems to suggest that male infertility is increasingly becoming a serious concern in the entire country,’ said Huang Yanzhong, senior fellow for global health at the Council of Foreign Relations in New York. If shown to reflect a broader trend, such findings would further complicate China’s mounting demographic problems.”
    • For reference, “China’s fertility rate – the number of children a woman is expected to have during her child-bearing years – was 1.05 last year….”
    • “The researchers in the Hunan semen study, published online in the journal Fertility and Sterility, say there is no clear explanation for why donors’ reproductive health declined so rapidly. But they point to ‘increased environmental pollution, including pollution of water, air and food,’ as a possible explanation.”
  • Sonia Talati of Barrons pointed to the declining sales prices in the Miami condominium market.
    • “The correction in Miami’s overheated condo market, which we predicted 18 months ago, has arrived sooner than we expected. Sales are down 30% since last October to 983 units. 870 newly-constructed units are currently listed, and only some 50 sold in the last six months, according to the latest report of real estate lender”
    • “Prices are coming down to the point that people are selling their Miami condos at a loss to be rid of their properties. Take, for example five units in the luxury-waterfront condominium building, Marina Palms, which sold below the prices that the sellers originally paid. One seller, who had purchased a unit for $950,000, hoping to soon have a property north of a million dollars, recently sold the unit for $800,000, a  16% loss, one year later. According to the report, the number of resale condos sold at a loss is up 500% since May.”
    • “The Miami condo market is going through a ‘price discovery phase,’ says Andrew Stearns,’s founder and CEO, with potential buyers ‘hesitant to enter into the market at the prices sellers are asking.'”
    • “Buyers are sitting on the fence with good reason. More than 10,000 units are scheduled to be completed within the next two years, almost doubling the existing available inventory of 14,000 condos.”


FT – North Pole temperature rise increases climate fears – Pilita Clark 11/22


FT – British workers face worst decade for pay in 70 years – Gemma Tetlow 11/24


Economist – What the world worries about 11/24


FT – India’s demonetization in four charts – Kiran Stacey 11/27


WSJ – Daily Shot – 11/30



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

De-development: Another Arab awakening is looming, warns a UN report. Economist. 29 Nov. 2016.

On November 29, the UN produced its latest Arab Development Report and the findings are not all that encouraging. “Five years on from the revolts that toppled four Arab leaders, regimes are ruthlessly tough on dissent, but much less attentive to its causes.”

“As states fail, youth identify more with their religion, sect or tribe than their country. In 2002, five Arab states were mired in conflict. Today 11 are. By 2020, predicts the report, almost three out of four Arabs could be ‘living in countries vulnerable to conflict.'”

“Horrifyingly, although home to only 5% of the world’s population, in 2014 the Arab world accounted for 45% of the world’s terrorism, 68% of its battle-related deaths, 47% of its internally displaced and 58% of its refugees. War not only kills and maims, but destroys vital infrastructure accelerating the disintegration.”

“The Arab youth population (aged 15-29) numbers 105m and is growing fast, but unemployment, poverty and marginalization are all growing fast. The youth unemployment rate, at 30%, stands at more than twice the world’s average of 14%.”

“Yet governance remains firmly in the domain of an often hereditary elite. ‘Young people are gripped by an inherent sense of discrimination and exclusion,’ says the report, highlighting a ‘weakening [of] their commitment to preserving government institutions.'”

Further, “despite the Arab League’s pretensions to brotherhood, visa-free travel among its 22 countries in unusual. Many Arabs need exit permits to boot.”

As the report’s lead author, Jad Chaaban, so aptly puts it “the moment I ban a displaced or marginalized person from traveling to work, I’m implicitly leaving him as a victim for an extremist ideology.”

On the plus side (or downside for the ruling elites), the current youth of the Arab world are better educated and more in tune with the world at-large thanks to social media.

China to clamp down on outbound M&A in war on capital flight. Gabriel Wildau, Don Weinland, and Tom Mitchell. Financial Times. 29 Nov. 2016.

“China is readying new restrictions on outbound foreign investment in an effort to curb capital outflows that are putting downward pressure on the renminbi and draining foreign exchange reserves, according to people who have seen a draft of the rules.”

“The State Council is most concerned about outbound mergers and acquisitions worth more than $10bn, said two people familiar with the government’s deliberations. They added that Chinese officials would scrutinize purchases of more than $1bn if they were outside the investor’s core business. Meanwhile, state-owned enterprises will not be allowed to invest more than $1bn on a single overseas real estate transaction.”

“‘The reversal of measures to liberalize capital outflows reflects China’s zig-zag approach to reforms,’ said Eswar Prasad, a China finance expert at Cornell University. ‘This step signals the government’s conventional preference for stability and control rather than economic liberalization and resulting volatility.'”

“According to commerce ministry data, Chinese companies’ overseas purchases have surged past last year’s record of $121bn for non-financial outbound investments, reaching $146bn over the first 10 months of 2016.”


“Due largely to capital outflows, the renminbi has fallen 5.8% this year, on track for its worst year on record. China has sold dollars from its foreign exchange reserves to try to curb downward pressure on the currency, with reserves hitting $3.12tn at the end of October, the lowest level since March 2011.”

“China is on course to record its first net foreign direct investment deficit this year, according to balance of payments data. Inbound FDI exceeded outbound flows every quarter from 1998 until the middle of last year but China has reported FDI deficits for four of the past five quarters, including a record $31bn in the third quarter of 2016.”

In addition to concerns about capital flight due to US dollar appreciation relative to the Yuan, “analysts and bankers said Beijing was also concerned about the quality of Chinese overseas investments. The government fears some transactions are being rushed through without proper due diligence to cash in on the dollar’s continuing appreciation against the renminbi.”

Despite tough talk, Indonesia’s government is struggling to stem deforestation. Economist. 26 Nov. 2016.

Despite being offered $1bn by Norway to stop cutting down its forests, Indonesia continues to burn its peatlands.

“In recent years no country has lost forest at a faster rate than Indonesia. Between 2000 and 2012 around 6m hectares [14.8m acres] of primary (meaning virgin) forest disappeared, mainly on the islands of Borneo and Sumatra. Roughly 40% of the deforestation took place in nominally protected areas.”


Further, the forest being cleared tends to be peatland. “Indonesia contains around 14.9m hectares of peatland – most of the world’s tropical peat forests.”

“Peat forests can be as much as 200 times more damaging to the atmosphere when burnt than other types of vegetation, both because they store more carbon and because more of it is released as methane, an especially harmful greenhouse gas.”

Bottom line, the palm-oil firms have too much influence and it has been too easy bribe officials to gain access to protected lands… “a paper published in 2013 found that almost 90% of deforestation in Sumatra between 2000 and 2010 was done by big palm-oil firms.”

Other Interesting Articles

Bloomberg Businessweek

The Economist

AWCS – Something I’m Worried About (underfunded pensions) 11/27

Bloomberg – Trump’s Tax Cut Means Billion-Dollar Writedowns for U.S. Banks 11/30

Economist – Barcelona hits Airbnb with a hefty fine 11/25

FT – Lawyers shake up a sleepy pension world 11/24

FT – Nigerian oil companies hit hardest by funding crisis 11/26

FT – China ‘fake equity’ court ruling threatens shadow banks 11/27

FT – Hunt for yield pushes more investors into riskier assets 11/28

FT – China M&A: full stop 11/29

FT – Beijing targets family assets in city anti-graft crackdown 11/29

FT – Chinese household debt surges 11/29

FT – China slaps extra tax on super-luxury cars 11/30

Inst. Investor – How Low Can CalPERS Go? 11/30

NYT – In Scotland, Trump Built a Wall. Then He Sent Residents the Bill. 11/25

NYT – Inside a Fake News Sausage Factory: ‘This Is All About Income’ 11/25

NYT – ‘My Soul Feels Taller’: A Whistle-Blower’s $20 Million Vindication 11/25

Vanity Fair – My descent into the right-wing media vortex 11/23

Visual Capitalist – Fertility Rates Keep Dropping, and it’s Going to Hit the Economy Hard 11/25

WSJ – Rising Mortgage Rates Help, but Also Hurt, Banks 11/27

WSJ – Big Names Take Hit on Theranos 11/28

WSJ – Home Prices Recover Ground Lost During Bust 11/29

WSJ – Chinese Developers Reassess U.S. Projects 11/29

WSJ – Why Italian Stability Is in the Hands of One Bank’s Bondholders 11/30

WSJ – India’s Cash Dash Stuffs Banks With Problems 12/1