Saudi Arabia looking for savings where it can find them.

Headlines

FT – Venezuela’s president raises minimum wage 50% 1/8. Despite minimum salary raises of 322% since February of 2016, Venezuelan workers now earn about $60 a month on the legal exchange rate or $12 a month at the black market exchange rate – bottom line is that goods inflation is outpacing wage inflation.

FT – Tillerson sets stage for clash with Beijing over South China Sea 1/11. In his confirmation hearing, US secretary of state nominee – Rex Tillerson, said in regard to the South China Sea “we’re going to have to send China a clear signal that, first, the island-building stops and, second, your access to those islands also is not going to be allowed.” If he is confirmed, you can bet there will be more tension to come.

Special Reports / Opinion Pieces

• FT – The long and painful journey to world disorder – Martin Wolf 1/5
• Two Views on the New Year from Across the Pond – John Mauldin 1/6
  • The Telegraph – Trump, Interest Rates and Chinese Panic: Why Euphoria Could Turn to a Credit Crunch in 2017 – Ambrose Evans-Pritchard 1/2
    • “Such is the currency paradox. As the Fed’s board dollar index pushes towards an all-time high of 130, the mechanical effects will expose the Achilles Heel of an international system that has never been more dollarized – and never been more sensitive to US interest rates since the end of the Bretton Woods era.”
  • Absolute Return Partners – Hiccup of the Year? – Niels Jensen 1/3
    • “USD 890 billion of EM bonds and syndicated loans (an all-time high) are coming due in 2017 with almost 30% of that denominated in US dollars.”
• FT – Trump and dollar strength will accelerate the Great Reckoning – Paul Hodges 1/11
• FT – How China rules the waves – James Kynge, Chris Campbell, Amy Kazmin, and Farhan Bokhari 1/12

Briefs

• Ben McLannahan of the Financial Times illustrated the growing discrepancy between GAAP and non-GAAP reporting at public companies.
  • “According to research company Audit Analytics, 96% of companies in the S&P 500 presented non-GAAP metrics in their earnings releases in the fourth quarter of last year. That was up from 88% in the third quarter.”
  • “Most of those non-GAAP numbers make the company look better. Last year a FactSet study found that the average difference between non-GAAP and GAAP profits reported by companies in the Dow Jones Industrial Average was 31%, up from 12% in 2014.”
  • Worse, “problems arise when companies go off-piste, using metrics that bear no relation to GAAP.”
  • Granted not all do this. “Telsa Motors, which is reckoned to be among the fastest and loosest with its anti-GAAP measures, said three months ago it would stop recognizing revenues according to its own peculiar formula.”

• John Gittelsohn of Bloomberg covered Bill Gross’ recent comments regarding the importance of 10-Year rate reaching 2.6% being a bigger deal than the Dow at 20,000.
  • “Investors should watch for 10-year Treasuries to move above 2.6%, a threshold that would mark an end to the three-decade bond bull market and be a more important barometer than the Dow Jones Industrial Average passing 20,000, according to billionaire bond manager Bill Gross.”
  • “‘It is the key to interest rate levels and perhaps stock price levels in 2017,’ Gross, manager of the $1.8 billion Janus Global Unconstrained Bond Fund, wrote in a monthly investment outlook released Tuesday. ‘Investment happiness and/or despair may lie ahead over the next 12 months depending on it.'”
• The Economist brought attention to recent research into “stand-your-ground” laws in America.
  • According to research published in the current Journal of the American Medical Association, soon after the 2005 “stand-your-ground” law passed in Florida (which allows “citizens who ‘reasonably believed’ their lives to be threatened were given the right to ‘meet force with force, including deadly force’ – even in public places and, critically, without the duty to try and retreat first”), “there was a sudden and sustained 24% jump in the monthly homicide rate. The rate of homicides caused by firearms increased by 32%.”
  • 
  • “The authors found that in states without a stand-your-ground law over the same time period those rates remained flat, suggesting that a nationwide crime wave was not to blame for the abrupt increase.”

 Graphics

WSJ – Developers Build on Home Rental Success With Whole Communities – Chris Kirkham 1/6

Business Insider – This Goldman Sachs chart sums up the global fallout from the 2008 financial crisis – Ben Moshinsky 1/9

WSJ – Daily Shot: FRED Revolving Credit v Hourly Earnings 01/09

WSJ – Daily Shot: FRED Student Loans 01/09

WSJ – Daily Shot: Northern Migration 01/09

WSJ – Daily Shot: Business Insider – US Income Disparity by State 01/09

WSJ – A Dark Day for Chinese Inflation – Nathaniel Taplin 1/10

WSJ – Daily Shot: PitchBook U.S. Venture Capital Activity 01/11

Featured

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

Saudi Arabia to cull billions of dollars of projects. Simeon Kerr. Financial Times. 11 Jan. 2017.

“Saudi Arabia is planning to cull billions of dollars of projects as part of its latest cost-cutting measures to narrow a gaping budget deficit and balance the books by 2020.”

In this effort PwC has been engaged to find savings between SR50bn and SR75bn ($13bn – $20bn).  “The focus of the cuts will be on capital expenditure, such as infrastructure projects, as Riyadh hopes to avoid any politically sensitive spending reductions after austerity measures last year triggered an outburst of public discontent.”

Bad for contractors – but really they just want to be paid what they’re already owed.  As it is “the government has halted or restructured hundreds of projects across the kingdom over the past two years. It has also delayed payments to companies, exacerbating the problems in the private sector and helping drive non-oil growth to less than 1% last year, its lowest level in years.”

“The finance ministry has pledged to finalize SR105bn in late payments by February.”

Saudi Arabia is not the only Gulf state making cuts. “The value of infrastructure contracts awarded in the Gulf last year fell 44% to $100bn, compared with $178bn in 2015, according to data from the Middle East Economic Digest. That compares with a high of $186bn in 2014.”

Other Interesting Articles

The Economist

• Fat tails – Inequality or middle incomes: which matters more?
• Japanese demography – Desperately seeking young people
• Silver lining – As Japan ages, so too does its workforce

CoStar – Blackstone Breaks Escrow on New Non-Traded REIT with Net Proceeds of $279 Million 1/4

FT – Vanguard is best-selling fund manager of 2016 1/7

FT – China’s coming property oligopoly, charted 1/8

FT – German bonds offer the best way to bet on a break-up of the euro 1/9

NYT – Department Stores, Once Anchors at Malls, Become Millstones 1/5

WSJ – Why Beijing’s Grip on the Yuan Is Becoming Tenuous 1/6
WSJ – How the Auto Makers Can Survive the Self-Driving Car 1/9

WSJ – Time to Start Worrying Again About Chinese Property 1/9

WSJ – America’s Fastest – Growing Loan Category Has Eerie Echoes of Subprime Crisis 1/10

WSJ – More Home Buyers Backed Out of Offers in 2016 1/11