January 20 – January 25, 2017 – the janus observer

San Francisco becoming a childless city. Now China is making it difficult for banks to move currency overseas.

This week’s post is going to be short a day – I’ll cover it in next weeks’ post – as me and my family are in the process of moving to Phoenix, AZ. Enjoy.

Headlines

FT – China GDP hits 2016 target as Trump headwinds loom 1/19. Like clockwork.

Bloomberg Businessweek – Drug Cartels Are Looting Mexican Gas Pipelines 1/12. A reduction in fuel subsidies has caused the price of gas to jump about 20% in Mexico, a side effect – cartels and entrepreneurs are siphoning about $1 billion a year from Pemex (the state oil utility).

WSJ – BT’s Italian Scam Is Just One of Many Problems 1/24. British Telecom’s Italian subsidiary had some shady practices, specifically borrowing cash and disguising it as sales, about £500 million in sales actually…

CoStar – Blackstone’s New REIT Makes First Acquisition 1/25. Blackstone’s new non-traded REIT bought a hotel at UC Davis, more importantly are the different characteristics of Blackstone’s non-traded REIT versus the industry norms. Specifically, fees capped at less than 8.75% and a hurdle rate of 5% before Blackstone participates in the upside.

NYT – When Snap Goes Public, Some Shareholder’s Voting Rights May Disappear 1/24. Sounds like a good deal… for the founders.

Briefs

Yuan Yang and Xinning Liu of the Financial Times highlighted Didi Chuxing’s recent dramatic workforce cuts following Shanghai’s and Beijing’s new anti-migrant rules.
- “Didi Chuxing, China’s dominant car-sharing company, is gutting its fleet of drivers in Shanghai to comply with the city’s new regulations restricting car-sharing platforms to the use of local drivers and locally-registered cars.”
- “Less than 3% of Didi’s 410,000 drivers in Shanghai have a local hukou (household registration) that would allow them to continue picking up passengers via the platform, according to the company.”
- “Compliance with the new regulations will further discourage Didi’s already-disgruntled drivers, who have seen subsidies plummet since Didi bought out its major competitor Uber in August. Last month, two Didi drivers were arrested in Fujian province for protesting the reduced subsidies. Drivers in Liaoning staged a similar protest.”
Leslie Hook of the Financial Times covered the recent $20m fine paid by Uber for misleading drivers about their potential earnings.
- “Uber has agreed to a $20m fine to settle claims that it misled drivers with inflated promises about potential earnings, the latest in a series of fines and settlements the company has faced around the world.”
- “According to the FTC (Federal Trade Commission) statement, Uber had claimed its drivers in New York had a median income of more than $90,000, while drivers in San Francisco made over $74,000. Instead, the FTC found that the drivers’ actual median income in those cities was just two-thirds of what Uber had claimed.”
- “The suit over misleading earnings claims highlights a persistent complaint from many Uber drivers who say they barely make enough to cover their costs.”
Mehreen Khan of the Financial Times discussed rating agency Fitch’s recent report on economic growth in China being fueled by unsustainable stimulus.
- “Responding to official government figures which showed the Chinese economy expanded by 6.8% in annualized terms in the fourth quarter, Fitch said developments in the Chinese economy are becoming a ‘significant risk to medium-term macroeconomic stability.'”
- “In particular, the agency noted Beijing’s attempts to pump ‘direct fiscal expansion and quasi-fiscal stimulus’ into its state-owned enterprises (SOE’s), where the annual pace of investment growth climbed to 19.1% from 10.7% from 2015.”
- “‘Outside of the SOE sector, fixed-asset investment growth slowed markedly, underlining the importance of stimulus in propping up demand and highlighting the risk that the economy might lack self-sustaining growth momentum,’ said Fitch.”
- “It pointed to climbing credit growth, capital outflows, and depreciation pressures on the currency which could all combine to result in slowing growth. China should however avoid an ‘outright financial crisis’ due to the over-sized role of the state in managing economic decline, said Fitch.”
Esther Fung of The Wall Street Journal pointed out how many Mall Owners are divesting themselves of their less desirable malls by giving back the keys to the lenders.
- “Mall landlords are increasingly walking away from struggling properties, leaving creditors in the lurch and posting a threat to the values of nearby real estate.”
- “In the period from January to November 2016, 314 loans secured by retail property – totaling about $3.5 billion – were liquidated, 11% more loans than in the same period a year earlier, according to data from Morningstar Credit Ratings. The liquidations resulted in a loss of $1.68 billion.”
- And it’s not just companies with financial difficulties. Retail landlords with billions in market cap and plenty of cash are walking away from properties, i.e. Simon Property Group and Washington Prime Group. But don’t you worry, their credit ratings haven’t been effected…
- “Despite a strengthening economy in 2016, the delinquency rate for loans backing retail property rose by 0.6% point last year to 5.76%, according to Trepp LLC, a real-estate data service. Special servicers, which deal with troubled commercial mortgage securities, managed $3.1 billion worth of mall-backed loans last year, up from $2.9 billion in 2015, according to Trepp.”
- “One reason mall owners struggle to restructure loans is that many were packaged into commercial mortgage-backed securities, and these bonds in turn are owned by numerous investors, making it difficult to negotiate new deals.”
Alan Rappeport of the New York Times reported on the recently released report by the CBO indicating that the Federal Debt is projected to grow by nearly $10 Trillion over the next decade.
- “After seven years of fitful declines, the federal budget deficit is projected to swell again, adding nearly $10 trillion to the federal debt over the next 10 years, according to projections from the nonpartisan Congressional Budget Office. The numbers reveal the strain that government debt could have on the economy as President Trump presses to slash taxes and ramp up spending.”
- “The deficit figures released Tuesday will be a major challenge to House Republicans, who were swept to power in 2010 on fears of a bloated deficit and who made controlling red ink a major part of their agenda under former President Barack Obama.”

Graphics

WSJ – Daily Shot: India’s Currency in Circulation 01/22

WSJ – California Housing Crunch Prompts Push to Allow Building – Chris Kirkham 1/25

Featured

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

San Francisco Asks: Where Have All the Children Gone?. Thomas Fuller. New York Times. 21 Jan. 2017.

“A few generations ago, before the technology boom transformed San Francisco and sent housing costs soaring, the city was alive with children and families. Today it has the lowest percentage of children of any of the largest 100 cities in America, according to census data…”

“As an urban renaissance has swept through major American cities in recent decades, San Francisco’s population has risen to historical highs… at the same time, the share of children in San Francisco fell to 13%, low even compared with another expensive city, New York, with 21%. In Chicago, 23% of the population is under 18 years old, which is also the overall average across the United States.”

“In an interview last year, Peter Thiel, the billionaire Silicon Valley investor and a co-founder of PayPal, described San Francisco as ‘structurally hostile to families.'”

“Prohibitive housing costs are not the only reason there are relatively few children. A public school system of uneven quality, the attractiveness of the less-foggy suburbs to families, and the large number of gay men and women, many of them childless, have all played roles in the decline in the number of children, which began with white flight from the city in the 1970s. The tech boom now reinforces the notion that San Francisco is a place for the young, single and rich.”

China clamps down on banks moving currency overseas. Tom Mitchell, Gabriel Wildau, and James Kynge. Financial Times. 22 Jan. 2017.

“Chinese regulators are stamping out moves by banks to shift renminbi out of the country as they attack one of the few loopholes remaining in the country’s strict new capital controls regime.”

“According to several people briefed on rules introduced this month, banks in Shanghai must ‘import’ Rmb100 for every Rmb100 they allow a client to remit overseas, ensuring no net outflows of the Chinese currency. Shanghai-based banks had been allowed to remit Rmb160 overseas for every Rmb100 they brought back into China.”

“The clampdown goes even further in Beijing where banks must import Rmb100 for every Rmb80 they remit overseas on behalf of clients, ensuring a net inflow into the capital.”

“Overseas banks, whose domestic market share in China is tiny, have been more affected by the clampdown because they derive a higher percentage of revenues from cross-border business. ‘This regulation is a bigger nightmare for foreign banks because we are more reliant on cross-border business than Chinese banks,’ one banker said.”

“Bankers have also complained that the central bank and Safe are only communicating regulatory ‘window guidance’ over the phone or during face-to-face meetings, rather than in writing.”

“They added that Safe (State Administration for Foreign Exchange) has instructed banks not to inform clients why their overseas remittances are being rejected and is checking their net renminbi flows on a weekly basis, compared with every month previously.”

Other Interesting Articles

Bloomberg Businessweek