Month: April 2017

April 28, 2017

Worthy Insights / Opinion Pieces / Advice

  • ZeroHedge – Canada’s Housing Bubble Explodes As Its Biggest Mortgage Lender Crashes Most In History – Tyler Durden 4/27
    • “Call it Canada’s ‘New Century’ moment.”
    • “We first introduced readers to the company we said was the ‘tip of the iceberg in Canada’s magnificent housing bubble‘ nearly two years ago, in July 2015 when we exposed a major problem that we predicted would haunt Home Capital Group, Canada’s largest non-bank mortgage lender: liar loans in particular, and a generally overzealous lending business model with little regard for fundamentals. In the interim period, many other voices – most prominently noted short-seller Marc Cohodes – would constantly remind traders and investors about the threat posed by HCG.”
    • “Today, all those warnings came true, when the stock of Home Capital Group cratered by over 60%, its biggest drop on record, after the company disclosed that it struck an emergency liquidity arrangement for a C$2 billion ($1.5 billion) credit line to counter evaporating deposits at terms that will leave the alternative mortgage lender unable to meet financial targets, and worse, may leave it insolvent in very short notice.”
    • “As part of this inevitable outcome, one which presages the company’s eventual disintegration and likely liquidation, Bloomberg reports that the non-binding rescue loan with an unnamed counterparty will be secured by a portfolio of mortgage loans originated by Home Trust, the Toronto-based firm said in a statement Wednesday. Home Capital shares dropped by 61% in Toronto to the lowest since 2003, dragging down other home lenders. Equitable Group Inc. fell 17%, Street Capital Group Inc. fell 13%, while First National Financial Corp. declined 7.6%. In short, the Canadian mortgage bubble has finally burst.”

Markets / Economy

Bloomberg Businessweek – Zombie Nation: In Japan, Zero Public Companies Went Bust in 2016 – Jason Clenfield 4/4

  • “Corporate Japan achieved a rare feat in the fiscal year that ended in March. Not one of its almost 4,000 publicly-traded firms filed for bankruptcy protection.”
  • But they’re not alone.
  • “In China, roughly 10% of the country’s publicly-traded companies are ‘among the walking dead,’ being kept alive by continuous support from government and banks, according to research by He Fan, an economist at Beijing’s Renmin University.”
  • “Across much of Europe, inefficient bankruptcy laws are partly to blame for rising numbers of undead companies. The problem is especially acute in Italy, where zombies represent 6% of all businesses, double the rate in 2007, according to the OECD report.”
  • “A 2016 academic paper co-authored by University of Maryland economist John Haltiwanger showed the rate of business start-ups has been falling steadily since the 1980s. The drop has been so steep since the financial crisis that in some recent years more U.S. companies have closed than opened-there’s destruction but not much creation.” Referencing Austrian economist Joseph Schumpeter’s concept of ‘creative destruction.’
  • “Paul Donovan, global chief economist at UBS Wealth Management in London, says that cheap credit has made business around the world less efficient, and that the real walking dead will remain hidden until borrowing costs begin to climb.”

Real Estate

Bloomberg – Robots May Help Build Your Next Home and Fill the Labor Gap – Prashant Gopal and Heather Perlberg 4/17

WSJ – The Hedge Fund Manager Who’s Shorting America’s Malls – Serena Ng and Esther Fung 4/26

WSJ – S&P’s Warning: Here Are 10 Public Retailers Most in Danger of Default – Khadeeja Safdar 4/26

  • “The number of bankruptcies so far this year has already come close to the total in 2016, with 14 retailers filing compared with 18 last year, according to S&P Global Market Intelligence.”
  • Further, “researchers at S&P Global Market Intelligence last week released a list of 10 publicly traded retailers they consider most at risk of default within the next 12 months.”
    • Sears Holdings Corp.
    • DGSE Companies Inc.
    • Appliance Recycling Center of America Inc.
    • The Bon-Ton Stores Inc.
    • Bebe Stores Inc.
    • Destination XL Group Inc.
    • Perfumania Holdings Inc.
    • Fenix Parts Inc.
    • Tailored Brands Inc.
    • Sears Hometown and Outlet Stores Inc.


WSJ – There’s Trouble in Capital One’s Wallet 4/26

  • “Credit losses aren’t at dangerous levels, though the rising charges are a bit worrisome given the strong jobs market. More concerning is the inability of Capital One to predict its own losses. Investors should be on guard for more nasty surprises from the entire credit-card industry.”

Bloomberg – Wells Fargo, JPMorgan Wary of Auto Loans, Pack Them in Bonds – Matt Scully 4/27

  • “Depending whose money they’re using, Wells Fargo & Co. and JPMorgan Chase & Co. either love subprime car loans or fear them.”
  • “Both banks have grown more reluctant to make new subprime loans using money from their own balance sheets. Wells Fargo tightened its underwriting standards and slashed the volume of all loans it made to car buyers in the first quarter by 29% after greater numbers of borrowers fell behind on payments. JPMorgan’s consumer and community banking head Gordon Smith earlier this year said the bank had cut its new lending for subprime auto loans ‘dramatically.'”


The Real Deal – Rumors circulate of Chinese government detaining Anbang chief Wu Xiaohui – EB Solomont and Cathaleen Chen 4/26

  • “According to the media reports, the investigation into Wu is connected to a $14.5 billion loan the Anbang chairman allegedly obtained illegally from Minsheng Bank. Wu used the illegal loan to invest in the stock market, the reports say. He may also have partly funded Anbang’s acquisitions with the loan, according to the reports.”
  • Oh by the way, “in January 2015, Reuters reported that Anbang had upped its stake in Mingsheng, the country’s largest private lender, to nearly 20%.”
  • Isn’t there a conflict of interest there?

Other Links

Bloomberg Businessweek – How a Gift of Coke Shares Helped Make These Colleges Richer – Janet Lorin 4/20

Bloomberg Businessweek – This Lawsuit Goes to 11 – Robert Kolker 4/20

April 26, 2017

If you were to read only one thing…

WSJ – Another Bubble Bursts in Hong Kong – Jacky Wong 4/25

  • This one is the article in its entirety.
  • “Hong Kong’s stock market is becoming a byword for dangerous bubble-blowing.”
  • “The latest stock to burst is Fullshare Holdings, a Chinese property developer valued at around $7 billion. Its stock slumped 12% on Tuesday, before the company suspended trading in its shares. The plunge came after California-based short seller Glaucus Research, which has shorted Fullshare, published a report claiming the stock is ‘one of the largest stock manipulation schemes trading on any exchange anywhere in the world.’ Fullshare declined to comment, but said it would release a statement at a later point.”
  • “Glaucus’s claim, which is based on analysis of trading patterns and Chinese filings, may be hard to prove. But in truth, investors should have spotted problems at Fullshare a while back. The company, which was valued at an eye-watering ten times book value as recently as last autumn, has generated most of its profits recently from paper gains on its 8.2% stake in another developer Zall Group , whose share price tripled last year. The problem? Zall in turn earns most of its profit from a reciprocal 3.5% stake in Fullshare, whose shares doubled last year. The bubbles in both companies’ stocks have fed on each other, giving a false image of how their businesses are doing.”
  • “Zall declined to comment.”
  • “If that weren’t enough, trading in Fullshare has also shown some unusual patterns. Glaucus says the stock has shown abnormally high returns in the final hour of trading—a pattern that was seen in previous Hong Kong stock bubbles such as Hanergy and Tech Pro. A look at trading data from FactSet from January to April this year seems to confirm the thesis. An investor buying Fullshare’s stock one hour before the market close and selling it at close, would have made a 44% return over the period. A simple buy-and-hold strategy, however, would have lost the investor 14%.”
  • More risky still is the way both Fullshare and Zall have loaded up on debt using their overpriced stocks. As of December, Zall had pledged all its Fullshare stocks in return for a loan. Fullshare had likewise pledged a large portion of its financial assets, which are mainly Zall shares. Zall’s chairman has also pledged 8% of the company’s shares to borrow money. If lenders to the companies are worried about the value of their collateral, they could dump the shares into the market, potentially leading to a stampede—similar to the recent fate of China Huishan Dairy, whose shares dropped 85% in an hour last month.”
  • Who could suffer when the bubble finally pops? Passive funds that were forced to buy the company when MSCI added the stock to its indexes in November. Vanguard, for example, owns 1.4% while BlackRock has 0.9%, according to FactSet.
  • “Fullshare’s stock price has never been sustainable given its high valuation and lack of a strong underlying business, but the latest report could be the final straw.”
  • Shenanigans…


Economist – The tempest: Workers in southern Europe are stuck in lousy jobs 4/20

  • “Dead-end, fixed-term jobs have haunted southern Europe for decades. In 2015 over half of employed 15-to-29 years olds in Spain were on temporary contracts, compared to two-fifths in Italy and just under a quarter in Greece; the average across the European Union is 14%.”
  • Economist_European temporary employment_4-20-17
  • Economist_European changes in temporary employment_4-20-17

Worthy Insights / Opinion Pieces / Advice

The Reformed Broker – Contra Einhorn – Joshua Brown 4/25

  • “More importantly, when Einhorn asserts that ‘There was no catalyst that we know of that burst the dot-com bubble in March 2000,’ he’s not correct. There was one. It was a Barron’s article, published over the weekend leading into Monday, March 20th. That was the top for the Nasdaq Composite (the rest of the market – aka ‘Old Economy’ stocks had already begun selling off as no one wanted anything non-dot com).”
  • “The article was called ‘Burning Fast‘ by Jack Willoughby and it may have been the most important piece of investment journalism ever up until that time.”

NYT – The Low-Inflation World May Be Sticking Around Longer Than Expected – Neil Irwin 4/26

Markets / Economy

FT – The five markets charts that matter for investors – FT Reporters 4/26

  • “The problem the US now faces is it has to normalize interest rates, but with the smallest 50% of companies already spending 30% of profits (and at peak EBIT) on interest rate costs, any move upwards is likely to push up interest cost to dangerous levels.” – Andrew Lapthorne, Societe Generale
  • FT_Interest rate costs as percentage of earnings for US non-financial cos_4-26-2017

Real Estate

WSJ – Concern Over Manhattan’s One Vanderbilt Project Grows – Peter Grant 4/25

WSJ – Rising Home Prices Raise Concerns of Overheating – Laura Kusisto 4/26

WSJ_Rising US Home prices_4-26-17


Economist – Cloning voices: Imitating people’s speech patterns precisely could bring trouble 4/20

Asia – excluding China and Japan

Economist – The rise of intolerance: Indonesia has been mercifully resistant to extremism-until now 4/20

  • “A local election shows how the unscrupulous can manipulate religion to win office.”


FT – UK public finance: councils build a credit bubble – John Plender 4/25

  • “UK local councils are engaging in what is known in the financial jargon familiar to hedge fund managers as a carry trade – a form of arbitrage whereby they borrow at rates much lower than private sector borrowers can obtain in order to invest in property that shows a much higher yield. Money borrowed at 2.5% or so is typically going into property yielding 6-8% or more.”


NYT – Debt Crisis Shakes Chinese Town, Pointing to Wider Problems – Keith Bradsher 4/25

  • “The problem: Local companies had agreed to guarantee hundreds of millions of dollars of one another’s loans. When some of those loans went bad, the impact rippled across the city.”
  • “Zouping’s plight offers a sobering example of the problems that could lurk within China’s vast and murky debt load. A nearly decade-long Chinese lending spree drove growth but burdened the economy with one of the world’s heaviest debt loads, equal to $21,600 worth of bank loans, bonds and other obligations for every man, woman and child in the country. Debt in China has expanded twice as fast as the overall economy since 2008.”
  • “China, the world’s second-largest economy after the United States, has considerable firepower to address any financial crisis. But many economists worry that hidden debt bombs could expose the breadth and severity of the problem.”
  • “The Chinese government has begun an urgent effort to discourage companies from guaranteeing one another’s bank debts, ordering local banking regulators across the country to file comprehensive reports by the end of the month on the problem. But sussing out the extent could be difficult.”

FT – China’s steel battles with west set to intensify – Lucy Hornby 4/25

  • “China’s steel battles in Europe and North America are likely to be only a prelude of bigger future fights as softening domestic demand unleashes a flood of output on to world markets. “
  • “China’s steel industry is the world’s largest, by far: at 808m tons last year it accounted for half of global production.”
  • FT_World steel production 2016_4-25-2017
  • “About 90% of Chinese mill output to date has been absorbed at home — but domestic consumption peaked in 2013. As China’s economic growth slows and infrastructure and property construction hits saturation point, more steel is poised to flow to global markets.”
  • “Last year China exported 109m tons, or 14% of its output — more than the total output of ArcelorMittal, the world’s largest steelmaker.”
  • FT_China steel consumption and exports_4-25-2017
  • “Because China’s steel industry is so big, every increase of 1% in exports is almost the equivalent of the entire export market for American steel mills.”
  • “But China is not a big source of American steel imports. ‘They are actually more worried about competition in third countries. It’s not so much about the Chinese presence in the US market,’ said Mei Xinyu, a strategist for the Chinese ministry of commerce.”
  • FT_Source of US steel imports_4-25-2017
  • FT_China steel export destinations_4-25-2017
  • “A pick-up in Chinese consumption this year could stave off the deluge for now. But unless there is a drastic cut in Chinese output, the prospect of a flood of Chinese steel on to global markets is not going away.”

Other Links

WSJ – Growing Homelessness Problems Spur Interest in Tiny Houses – Zusha Elinson 4/26

April 25, 2017

If you were to read only one thing…

WSJ – ‘Apartheid Without the Racism’: How China Keeps Rural Folks Down – Mark Magnier 4/24

  • “An epic property boom restricted to city dwellers has opened a wealth gap that continues to widen in China, setting back a state campaign to ease poverty and shunting rural dwellers from the middle-class dream.”
  • “China’s system of hukou, or household registration, a decades-old legacy of the planned economy, binds most Chinese to their place of birth, and denies those outside China’s booming megacities the right to buy property inside them.”
  • “That has largely shut them out of one of history’s biggest wealth transfers: 98% of Chinese housing is now in private hands from virtually none a generation ago. Over the past decade, housing prices have increased as much as 700% in cities like Beijing and Shanghai. Property now accounts for 70% of personal wealth in the country.
  • “’Housing is everything in China,’ said Li Gan, a professor at Southwestern University of Finance and Economics. Unless the Communist Party privatizes land, which is unlikely, farmers will continue to lose ground, he said.”
  • “In 1978, when China embarked on economic overhauls, city dwellers earned about twice as much as rural residents; they now earn about 3.5 times as much, according to a study released in April by Paris School of Economics professor Thomas Piketty and World Bank consultant Li Yang.”
  • “Studies by the Asian Development Bank and the University of Michigan suggest China’s rich-poor gap is even higher once property and hukou status are taken into account. ‘The urban-rural wealth divide is much greater than the income divide,’ Southwestern University’s Mr. Gan said.”
  • “Often, the difference comes down to a line on a map.”
  • Across China, urban residents accumulated wealth at twice the rate of rural dwellers between 2002 and 2010, leaving city dwellers with a nest egg six times larger, mostly because of housing, according to a 2015 study by Shi Li and Haiyuan Wan in China Economic Journal.”
  • “The opportunity cost of a rural background becomes even starker when considering the insider deals handed to urbanites who lived in apartments associated with their government jobs when China started to privatize housing.”
  • “China has for decades talked about overhauling the hukou system, which economists say undercuts economic growth. Political resistance is strong as city officials balk at providing services to more people.”
  • “’The hukou system is kind of like apartheid without the racism,’ said Scott Kennedy, a China expert with the Center for Strategic and International Studies. ‘The life chances of rural and urban Chinese are vastly different.'”
  • “Beyond access to appreciating property markets, rural residents are also boxed out of good schooling and a range of other services in major cities.”

Worthy Insights / Opinion Pieces / Advice

FT – Can the bankers sell Saudi Aramco? – Nick Butler 4/23

Real Estate

FT- Why are hedge funds raising their bets against US shopping malls? – Miles Johnson 4/24

  • “The logic of the trade is simple: the financial health of mall operators is ultimately decided by their tenants and eventually the wider market will wake up to this. It hinges on one fairly simple idea – that the broadly held belief that ‘A’ malls are different to other malls is a fallacy. The hedge funds believe that, when reality dawns that many of the largest tenants of prime malls are also experiencing difficulties, their shares will experience a violent downward re-rating.”


Vanity Fair – Jack Ma to World: Prepare for Decades of Pain – Maya Kosoff 4/24

  • “Ma warned… that the education system must change to account for seismic advancements in technology – including artificial intelligence, robotics, and manufacturing automation – that will disrupt the labor market and create massive societal upheaval.”

WSJ – Once-Flush Startups Struggle to Stay Alive as Investors Get Pickier – Eliot Brown 4/23

  • “In 2014 and 2015, mutual funds, hedge funds and other investors pumped billions into companies that they now see as overvalued, and unlikely to pull off an initial public offering. As venture capitalists became more discerning, investment in U.S. tech startups plummeted by 30% in dollar terms last year from a year earlier.”
  • “For some startups, investor demand is still robust. Much of the money still being invested is pouring into the upper echelon of highly valued startups like Airbnb Inc. and WeWork Cos., or younger ones with clear paths to profit.”
  • “Venture-capital firms remain flush with cash: They raised $44 billion last year, the most since the dot-com boom.”
  • “But investors are staying away from scores of initially well-funded startups that once looked like relatively safe bets, forcing these companies to fight for survival as they burn through their stockpiles of cash and scramble for new money or buyers.”
  • “’They’re like the walking dead,’ said David Cowan, a partner at Bessemer Venture Partners, who expects a steady stream of failures.”
  • “In 2014 and 2015, more than 5,000 U.S. tech startups collectively raised about $75 billion, according to Dow Jones VentureSource—the largest amount in any two-year period since the dot-com boom.”
  • “Much of that money went to a small share of tech startups: 294 such companies raised at least $50 million apiece. Almost three-quarters of those companies—216—have neither raised money nor been acquired since the end of 2015. Startups tend to raise funding every 12 to 18 months.”
  • “Seemingly every week lately, a well-funded startup is slashing jobs or pulling the plug.”
  • “In recent months, mobile-search startup Quixey Inc. shut down after raising over $100 million, health-benefits broker Zenefits—which has raised more than $500 million—laid off nearly half of its staff, and blogging platform Medium cut one-third of its employees after raising $132 million.”


FT – Kaisa Group’s recovery suggests investors have selective memories – Tom Mitchell 4/25

  • “Put another way, would you buy the bonds or shares of a company that admitted just five months ago that it cannot explain how almost $9bn flowed into and out of its coffers over the course of three financial years?”
  • “In Kaisa’s case, following the money is like wandering through a maze with many dead ends… the number of still unanswered questions is shocking. The Rmb35bn in borrowings – tapped from unidentified ‘non-bank financial institutions’ – flowed into Kaisa at a time when investors were increasingly worried about the gearing of Chinese property developers.”


April 24, 2017

Worthy Insights / Opinion Pieces / Advice

FT – Venezuela’s broken system cannot fix itself – Daniel Lansberg-Rodriguez 4/23

FT – Silicon Valley ‘superstars’ risk a populist backlash – Rana Foroohar 4/23

  • “…a spate of research shows that it is not trade or rapacious bankers but technology that is the primary economic driver of the most important political trend of our time – populism.”
  • “What is perhaps most fascinating about this is that Silicon Valley has largely escaped the populist anger that Wall Street or cheap Chinese labor has attracted. As University of Chicago professor Raghuram Rajan has pointed out, this may be because the job-disrupting effects of technology are harder to see than those of trade. Of the nearly 6m manufacturing jobs lost in the US between 1999 and 2011, only about 10% can be directly traced to Chinese imports – yet those losses are concentrated in just a few rust belt communities. The more subtle, dispersed nature of the changes driven by Silicon Valley makes it a less obvious target for voter rage. And of course, we all love our gadgets: remember Democratic Senator Carl Levin mooning over his iPhone even as he led Senate hearings into Apple’s use of offshore tax havens in 2013?”

Markets / Economy

WSJ – The Economy’s Confidence Game – Justin Lahart 4/23

  • “The bullish case is that newly optimistic consumers and business owners will soon start spending, boosting economic data. This is generally what happens when the economy is coming out of recession, with the hard data following the soft data higher.”
  • “But the economy isn’t coming out of a recession-the last one ended nearly eight years ago. Instead, the country has experienced a long period of rising employment and disappointing but steady growth. The pent-up demand that exists in the aftermath of a downturn isn’t there. And the mere possibility of lower taxes and faster growth hasn’t changed the caution that consumers and businesses learned since the financial crisis.”
  • “The clock is ticking says Bank of the West economist Scott Anderson. Historically, when the hard data doesn’t pick up within a month or two of the move higher in the soft data, the soft data tends to tumble.”

Real Estate

ULI – Trepp Talk: Nontraded REITs Raise Lowest Volume of Capital in 14 Years – Orest Mandzy 4/24

  • “The departure of AR Global Investments from the nontraded real estate investment trust (REIT) world, coupled with uncertainty surrounding substantial pending regulations, has put a sizable damper on the ability of the nontraded REIT sector to raise capital. According to Summit Investment Research, $4.8 billion of equity was raised by sponsors of 35 entities last year. That was the lowest volume in 14 years, and pales in comparison to the $10.2 billion of equity that was raised in 2015.”
  • At its height, the sector raised over $20 billion in 2013. “American Realty-by then known as AR Capital-was responsible for more than one-third of that total.”

WSJ – Brick-and-Mortar Stores Are Shuttering at a Record Pace – Suzanne Kapner 4/21


BloombergGadfly – Oil Drillers’ Vanishing Safety Net – Lisa Abramowicz 4/18

  • “A lot of companies view revolving credit lines the way some rock climbers view harnesses and ropes: They would rather not use them, but they’re glad to have them when trouble strikes.” 
  • “So it’s worth paying attention when a corporation starts withdrawing a substantial amount of money under these prearranged agreements with banks. This can signal a significant problem.”
  • “For example, consider last fall, when more than 20 energy companies had borrowed more than two-thirds of their limit on their credit lines, according to Spencer Cutter, a senior credit analyst with Bloomberg Intelligence. More than four of those have since filed for bankruptcy. The degree of distress last year wasn’t surprising given the sharp plunge in oil prices that started in 2014. A mounting number of energy companies were forced to sell assets, restructure or file for bankruptcy.”
  • Well things have gotten better since then right? Yes, but… there are “at least 11 oil and gas producers are using 70 percent or more of their borrowing-base credit lines, according to Cutter. That includes smaller companies such as Trinity River Energy, Yuma Energy and Mid-Con Energy, and some larger ones such as Sanchez Production Partners and California Resources.”
  • “Over the next few weeks, companies will start announcing their new revolving credit agreements. Investors shouldn’t be surprised at some bad news for smaller energy companies that still haven’t fortified their balance sheets. Just because oil prices have stabilized and even marginally increased doesn’t mean that there won’t be additional rounds of energy-related bankruptcies and restructurings in the near future.”

WSJ – Daily Shot: Baker Hughes US Oil Rig Count 4/23

WSJ – Daily Shot: US Rig Count Recovery Index – Historical Reference 4/23


FT – China’s fight with Visa and MasterCard goes global – Don Weinland and Gabriel Wildau 4/23

WSJ – Daily Shot: FRED – Commercial and Industrial Loans, All Commercial Banks 4/23

WSJ – Daily Shot: FRED – Consumer Loans, Auto Loans 4/23


WSJ – A Chinese Property Stock Surge That Is Set to Crumble – Jacky Wong 4/24

  • “China’s bubble-prone property sector isn’t known for its stability. Even so, a 42% rise in the Hong Kong-listed shares of the country’s biggest property developer, China Evergrande Group, over the past month, is striking. Sadly for investors, it’s built on very shaky foundations.”

April 23, 2017

Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense: Urgent vs. Important & the Power of Small Wins – Ben Carlson 4/20

Real Estate

LAT – When car ownership fades, this parking garage will be ready for its next life – Roger Vincent 4/16


WSJ – Grab Your Pitchforks, America, Your 401(k) May Need Defending from Congress – Jason Zweig 4/21

FT – US banks gain from rate rises as savers suffer – Alistair Gray 4/20

  • “Figures released by the biggest US banks in recent days show the industry is finally starting to profit from higher rates. Lending margins, which last year reached their lowest level in six decades, rose in the first quarter by the most in seven years.”
  • “If the eight basis point margin increase were to hold up across the sector, Autonomous analyst Brian Foran estimates the US banking industry would net an additional $11bn of interest income per year.”

Environment / Science

WP – Thousands of tiny satellites are about to go into space and possibly ruin it forever – Avi Selk 4/21

  • “Hundreds of thousands of bits of space junk are orbiting Earth, according to NASA. These include tiny paint flecks that can take out a space shuttle window, and some 2,000 satellite shards left by a collision of Russian and American satellites several years ago.”
  • Further, “as satellites get smaller and cheaper, more and more of them are going into orbit to potentially smash into each other.”
  • “In February, the New York Times reported, India launched 104 tiny satellites into space from a single rocket.”
  • “In all of human history… about 7,000 spacecraft have left the Earth…[and] 12,000 new satellites are set to go up soon…”
  • What’s new is that “many of these – like the batch India sent into space – are nano-satellites: tiny, motorless machines that promise to revolutionize communications.”
  • Great, except that they are not maneuverable and dramatically increase the odds of collision…


FT – China bond party attracts few takers – Gabriel Wildau 4/20

April 20, 2017


FT – Beijing’s migrants no longer welcome as city caps population – Lucy Hornby 4/19

  • “Beijing has announced plans to combat what it calls ‘urban diseases’ by capping its population and shrinking its footprint, wreaking havoc on the small businesses and migrants that throng its bustling streets.”
  • “The Chinese capital will cap its population at 23m ‘long-term residents’ by 2020 ‘and keep it at that level for the long term,’ a city government notice said.”
  • “The permanent population of Beijing’s central districts dropped by 353,000 last year, according to municipal data released last week. The capital’s official population is now close to 22m.”
  • “Within the capital, the campaign has translated into the destruction of small shops and businesses that make up 35% of the city’s economy but only 7.5% of its tax revenues, according to 2011 figures, the most recent available.”
  • “Officially, China still encourages the integration into cities of hundreds of millions of people still residing in the countryside.”
  • “But migrants with a rural hukou, or household registration, are expected to settle in provincial cities or county seats, where a multiyear property bubble has left rows of empty apartment blocks. They are not so welcome in cities such as Beijing or Shanghai, where hospitals and schools are much better and higher incomes allow the service industry to flourish.”
  • “In the past two years Beijing has torn down wholesale markets and made it harder for children to attend school in order to force out migrant families.”
  • “‘They needed us when Beijing was growing but now that it’s developed, they don’t want us anymore,’ said one woman who has lived in Beijing since she arrived as a 15-year-old nanny 23 years ago.”
  • “In 2016 the capital tore down 30m square meters of small shops, restaurants and fruit stands deemed ‘illegal construction.’ It is targeting the destruction of 40m sq meters this year, shrinking the land zoned for construction to 2,760 sq km by 2030 while expanding parks and gardens.”

FT – China seeks return of outspoken tycoon Guo Wengui – Gabriel Wildau and Lucy Hornby 4/19

NYT – Chinese Investment Scandal Highlights ‘Shadow Banking’ Risks – Sui-Lee-Wee and Owen Guo 4/19

  • In regard to the latest wealth management product scandal…”Investors, assured that the government will come to the rescue, do not worry about the potential risks and continue to pour money into the products. According to the state news media, Chinese investors have put $4.4 trillion into wealth management products, equivalent to about 40% of the country’s annual economic output.”
  • “China Minsheng, the bank at the heart of the latest scandal, had a good pitch.”
  • “The product, it told investors, would provide a return of 8% to 27%. To sweeten the deal, the bank offered free golf events and trips to South Africa and other overseas locales.”
  • “…Chinese news media reported that more than $400 million of investors’ money had disappeared.”
  • “Along with wealth management products from banks, online lenders are jumping into the game, adding to the risks. Last year, Chinese authorities said an online finance company had bilked investors out of more than $7.6 billion in what they said was a huge Ponzi scheme.”

South America

FT – Venezuelans take to the streets in ‘mother of all marches’ – Andres Schipani 4/19

April 19, 2017

Worthy Insights / Opinion Pieces / Advice

Naked capitalism – It’s Time to Regulate the Gig Economy – Yves Smith 4/18

  • “Depicting work in the platform economy as a mere ‘sharing of favors’ conveys an image of the gig economy as a sort of parallel dimension, where chores are amateurishly carried out as a form of leisure, with no relation to ‘work’. The reality, however, is different. For most workers, platform-based work is an essential source of income. The ILO recently surveyed workers on two important micro-task platforms: Amazon Mechanical Turk and Crowdflower. Forty percent of respondents answered that crowdwork constituted their principle source of income. Workers averaged 30 hours a week on the platform.”

Markets / Economy

FT – IMF says debt binge leaves US corporate assets exposed – Shawn Donnan and Gemma Tetlow 4/19

  • “A debt binge has left a quarter of US corporate assets vulnerable to a sudden increase in interest rates with the ability of companies to cover interest payments at its weakest since the 2008 financial crisis by one measure, the International Monetary Fund has warned.”


FT – The fearless market ignores perils ahead – Robin Wigglesworth 4/18

  • “The big mystery of the year has been the disconnect between the chaos in Washington and the calmness in markets.” – Adam Sender, head of Sender Company and Partners, a hedge fund.
  • “In part, Vix (Chicago Board Options Exchange Volatility Index) has been becalmed because the US stock market has been remarkably placid. The S&P 500 recently enjoyed its longest run of avoiding big drops of more than 1% in over two decades. But the evaporation of volatility also reflects profound structural changes that have taken place since the financial crisis, such as the primacy of central banks and the big shift into exchange traded funds.”


FT – China’s capital controls dent inbound investment – Don Weinland 4/18

  • “China’s restraints on capital outflows have started to discourage inbound investment into the country, the opposite of the intended effect of the measures.”
  • “Last year, Beijing began cracking down on outbound investments and stopping companies from remitting capital offshore in an attempt to preserve its rapidly deteriorating foreign reserves, which dipped below $3tn in January for the first time in five years.”

FT – Wang Jianlin confirms China blocked Wanda’s US TV deal – Lionel Barber and Charles Clover 4/18

  • China’s richest person, Wang Jianlin, confirmed that new regulations scuttled his planned $1bn acquisition of Dick Clark Productions.

NYT – As Zeal for China Dims, Global Companies Complain More Boldly – Sui-Lee Wee 4/19

Other Links

FT – Fifa struggles to win backers for Russia World Cup – Murad Ahmed and Max Seddon 4/18

  • “World football’s governing body lost several major sponsor, including Sony and Emirates, when their deals ended at the end of the last tournament in 2014. For the 2018 tournament in Russia, Fifa has 10 companies signed up as sponsors, but before the last tournament in Brazil, the organization had 20 corporate partners on board.”

Reuters – U.S. soda sales drops for 12th straight year – Sruthi Ramakrishnan 4/19

  • “Sales of soda drinks decreased about 1.2% in the United States in 2016, falling for the 12th  year in a row, a report by trade publication Beverage Digest showed, as demand was hit by consumers choosing healthier options and a slew of sugar taxes aimed at stemming obesity and diabetes.”
  • “However, total sales dollars increased 2% to $80.6 billion as soft drinks makers aggressively pushed smaller packs at higher prices per ounce, while lowering emphasis on large discount packs, the Beverage Digest said.”

April 18, 2017

Markets / Economy

Economist – Cash-strapped pensioners: America has a retirement problem, not a saving problem 4/18


WSJ – The Risk of Rising Consumer Borrowing – Aaron Back 4/17


Value Walk – If The China Property Bubble Bursts, Banks And Individual Wealth Likely More Impacted – Mark Melin 4/12

  • “The risk of the China property bubble bursting and impacting the macroeconomic environment ‘has become more pronounced,’ Moody’s analysis observes. In fact, if a property bubble does burst, its impact would be more diffuse, impacting not only the supply chain as it has in the past, but more significantly the banking system and consumer wealth effect.”
  • “The impact of home ownership on household wealth has been on the rise. In 2013, it represented 62.3% of all Chinese personal wealth and has steadily risen since. In 2015 it was 65.3% and in 2016 it grew to 68.8% of all wealth in the Asian nation.”

WSJ – The Danger in China’s Dual Debt Cycle – Anjani Trivedi 4/18

April 17, 2017

Worthy Insights / Opinion Pieces / Advice

FT – China faces a tough fight to escape its debt trap – Martin Wolf 4/11

Real Estate

WSJ – Daily Shot: Households with Negative Equity 4/17


NYT – Vanguard Is Growing Faster Than Everybody Else Combined – Landon Thomas Jr. 4/14

  • “In the last three calendar years, investors sank $823 billion into Vanguard funds, the company says. The scale of that inflow becomes clear when it is compared with the rest of the mutual fund industry – more than 4,000 firms in total. All of them combined took in just a net $97 billion during that period, Morningstar data shows. Vanguard, in other words, scooped up about 8.5 times as much money as all of its competitors.”

April 16, 2017

Happy Easter!

Real Estate

FT – Chinese buyers fuel Brooklyn real estate boom – Rana Foroohar 4/16

  • “…World property markets have become totally disconnected from national economies. There has been a massive housing recovery in the US since 2008, but over half of all the gains have accrued to a handful of coastal and wealthy inland markets.”

NYT – Is American Retail at a Historic Tipping Point? – Michael Corkery 4/15

  • “Between 2010 and 2014, e-commerce grew by an average of $30 billion annually. Over the past three years, average annual growth has increased to $40 billion.”
  • “’That is the tipping point, right there,’ said Barbara Denham, a senior economist at Reis, a real estate data and analytics firm. ‘It’s like the Doppler effect. The change is coming at you so fast, it feels like it is accelerating.'”
  • “This transformation is hollowing out suburban shopping malls, bankrupting longtime brands and leading to staggering job losses.”
  • “More workers in general merchandise stores have been laid off since October, about 89,000 Americans. That is more than all of the people employed in the United States coal industry, which President Trump championed during the campaign as a prime example of the workers who have been left behind in the economic recovery.”
  • “The job losses in retail could have unexpected social and political consequences, as huge numbers of low-wage retail employees become economically unhinged, just as manufacturing workers did in recent decades. About one out of every 10 Americans works in retail.”
  • “The current torrent of closures comes as consumer confidence is strong and unemployment is low, suggesting that a permanent restructuring is underway, rather than a dip in the normal business cycle. In short, traditional retail may never recover.”
  • “There is a rolling crisis that has emerged in the last couple of years as store closings are being announced.  People are losing their jobs and have no other place to go. Theoretically this is the marketplace rationalizing itself, but in the interim how do people survive?” – Mark Cohen, Columbia University


FT – Detention of China regulator heralds clampdown on insurers – Emily Feng 4/14

Middle East

Reuters – Exclusive: Saudi to shelve, reform billions of dollars of unfinished projects – Marwa Rashad 4/16

South America

Reuters – Brazil’s Odebrecht paid $3.3 billion in bribes over a decade – Paulo Prada 4/15

  • “Odebrecht SA, the Brazilian engineering company at the center of a historic corruption scandal, paid out a total of about $3.3 billion in bribes in the nine years through 2014, according to testimony cited by local media on Saturday.”
  • “Through a department specifically established to pay politicians and other recipients for public works contracts, Odebrecht paid as much as $730 million annually in both 2012 and 2013, the years when bribe payments peaked, according to a spreadsheet that a former executive reportedly gave investigators as part of a plea deal.”