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March 31 – April 6, 2017


Increases in 401(k) leakage do not bode well for US retirements. Australian house price bubble. The hard facts about coal.


NYT – Venezuela Muzzles Legislature, Moving Closer to One-Man Rule 3/30. It’s been a few decades since a Latin American country has regressed into a dictatorship.

Bloomberg – Venezuelan Top Court Reverses Shock Ruling on Congress Authority 4/1. Well then they reversed the ruling “… after the nation’s top prosecutor, a Maduro ally, labeled the Supreme Court’s March 29 move unconstitutional.” There may be hope for Venezuela yet.

Reuters – Venezuela money supply up 200 percent in year, fastest rise on record 4/3. When coupled with declining output of goods and service, it means inflation – for “contrast, the United States’ money supply was up 6.4% in the same period.”

NYT – Within Hours, Plans for a Quiet Corner of China Send Home Prices Soaring 4/3. And just like that the county of Xiongxian was anointed. 

FT – Businesses stirred by new Indian alcohol curbs 4/3. The Supreme Court in India just banned alcohol sales within 500m of a national highway causing a vast number of business establishments (hotels, restaurants, bars, etc.) to reel.

FT – Xi’s crackdown on corruption is a boon to corporate China 4/3. The corruption crackdown is working and companies are finding that they are having to set aside less to cover the vig.

Special Reports / Opinion Pieces



WSJ – Daily Shot: Employment in video-tape and DVD rental stores 3/30

Pew Research – Key findings about Puerto Rico – Jens Manuel Krogstad, Kelsey Jo Starr and Aleksandra Sandstrom 3/29

WSJ – Fed Sees Car Trouble Down South – Aaron Back 3/30

FT – Low oil price and currency controls hit Nigeria hard – Siona Jenkins 3/31

WSJ – Daily Shot: FRED – Loans and Leases, All Commercial Banks 4/2

Slowing credit growth in the U.S.

WSJ – Daily Shot: FRED – Commercial and Industrial Loans 4/2

WSJ – Daily Shot: FRED – Consumer Loans – Other and Automobile Loans 4/2

WSJ – Daily Shot: FRED – Real Estate Loans, All Commercial Banks 4/2

WSJ – Daily Shot: Vox – US Opioid Usage 4/2

WSJ – Daily Shot: Vox – US Opioid Prescription per capita 4/2

Visual Capitalist – How Much State Debt Rests on Your Shoulders? – Jeff Desjardins 4/3

WSJ – Daily Shot: John Burns Real Estate Consulting – US Annual Medical Costs 4/3

WSJ – Daily Shot: NY Fed – US Consumer Debt 4/3

WSJ – Daily Shot: NY Fed – US Consumer Debt by Age of Borrower 4/3

WSJ – Daily Shot: China Credit Boom 4/3


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

The Rising Retirement Perils of 401(k) ‘Leakage.’ Anne Tergesen. The Wall Street Journal. 2 Apr. 2017.

“American companies are trying to stop employees from raiding their 401(k)s, in an attempt to ensure that older workers can afford to retire and make room for younger, less-expensive hires.”

“Tapping or pocketing retirement funds early, known in the industry as leakage, threatens to reduce the wealth in U.S. retirement accounts by about 25% when the lost annual savings are compounded over 30 years, according to an analysis by economists at Boston College’s Center for Retirement Research.”

“‘Employers have done a lot to encourage people to save in 401(k) plans, such as automatically enrolling them. But there is a growing recognition that if the money isn’t staying in the system, the objective of helping employees reach their retirement goals isn’t being met,’ says Lori Lucas, defined-contribution practice leader at investment-consulting firm Callan Associates Inc.”

“Employees who grew accustomed to borrowing from their 401(k)s during the recession are tempted by the rising balances in these types of plans, which currently hold $7 trillion, up from $4.2 trillion in 2009, experts say.”

Further, when employees change jobs there is the temptation not to rollover their 401(k) balances.

“On average, about 30% to 40% of people leaving jobs to elect to cash out their accounts and pay taxes and often penalties rather than leave the money or transfer it to another tax-advantaged retirement plan, according to recordkeepers and economists.”

“Most plans also allow people to pull out their savings-after paying taxes and typically a penalty-for reasons including buying a home, preventing foreclosure, and paying medical bills and college expenses, something relatively few participants do annually. These are known as hardship distributions and the employee must demonstrate an ‘immediate and heavy financial need,’ according to the Internal Revenue Service.”

“Employees can also generally choose to borrow up to half of their 401(k) balance or $50,000, whichever is less, without having to state a reason. According to the Employee Benefit Research Institute, a nonprofit research group, 87% of participants are in plans that let them take 401(k) loans.”

“About a fifth of 401(k) participants with access to 401(k) loans take them, according to the Investment Company Institute, a mutual-fund industry trade group. While most 401(k) borrowers repay themselves with interest, about 10% default on about $5 billion a year, says Olivia Mitchell, an economist at the University of Pennsylvania’s Wharton School.”

“‘4019(k) plan leakage amounts to a worryingly large sum of money that threatens to undermine retirement security,’ says Jake Spiegel, senior research analyst at research firm Morningstar Inc. His calculations show that employees pulled $68 billion from their 401(k) accounts taking loans and cashing out when changing jobs in 2013, up from $36 billion they withdrew in 2004.”

Fears of bubble as Australian house prices surge. Jamie Smyth. Financial Times. 2 Apr. 2017.

“Australia’s house prices are rising at their fastest pace in seven years, igniting fears of an emerging property bubble and prompting regulators to crack down on risky bank lending.”

“New figures on Monday show residential property prices have increased 12.9% in the past 12 months, with prices in Sydney surging 18.9% – the fastest rate of growth in almost 15 years.”

“House prices in Sydney have more than doubled since the financial crisis hit in January 2009 while prices in Melbourne are up 92.4%. This has occurred despite sluggish consumer price inflation, tepid rates of business investment and economic growth.”

“Surging house prices are a concern for global regulators as they seek to prevent the asset price bubbles in an ear of ultra-low interest rates ushered in by the financial crisis in 2008. Regulators in Australia, Ireland, New Zealand and a host of other countries have introduced macroprudential rules in a bid to slow house price inflation.”

“In 2014 Australian regulators placed a 10% limit on growth in new lending to investors, a move that initially slowed bank lending to the buy-to-let sector. But a recent increase in lending to investors prompted regulators on Friday to issue new rules limiting the flow of ‘interest only’ mortgage lending by banks to 30% of new loans issued.”

“About 40% of new mortgages are issued on ‘interest only’ terms, under which borrowers do not have to pay back the principal of the loan for a specific period.”

“The regulator also placed limits on the volume of ‘interest only’ lending at loan-to-value ratios above 80% and flagged closer scrutiny of lending at loan-to-value ratios above 90%.”

More importantly, economists are pointing to the Australian tax system that needs some reform. Specifically “Australia’s system of ‘negative gearing’ provides investors with a tax break allowing them to claim as losses the financing and other costs of their rental properties against other income. The tax break has become so popular that 15% of the electorate have become buy-to-let investors.”

“Investor loans make up just over one-third of the A$1.49tn (US$1.13tn) residential property market, according to Australia’s prudential regulator.”

Reminds of me of the U.S. tax system before the Tax Reform Act of 1986 – when professionals of all sorts would invest in real estate simply for the sake of the tax write-off. If the property made money or went up, all the better. Easy to see how valuations can become disconnected from their fundamentals.
Alternative truths and some hard facts about coal. Nick Butler. Financial Times. 2 Apr. 2017.

The facts:

At the same time

In the UK, regulation is systematically phasing out coal energy.  In Germany, there is enough political support from the Social Democratic party to keep coal use going.

“In the US, the main threat to coal is not environmental regulation but price competition from low-cost natural gas. Coal is the principal victim of the shale gas revolution and the revival of the shale industry will intensify that competitive challenge over the next decade.”

“China is the world’s largest user of coal (burning more than 50% of the global total) and is pursuing a serious policy of encouraging renewables and setting a ceiling on coal demand growth.”

“The biggest challenge and the most important factor in the global coal market is India.” While the country is serious about renewable energy initiatives, the country wants economic growth.  “The problem is that to grow, it needs the cheapest possible form of power on a large scale and for the moment that is coal. Nuclear, solar and wind will all contribute but coal is the pre-eminent source of supply and Indian imports will shape the world market.”

“Coal is plentiful and cheap and will be made cheaper still if US producers, under pressure from gas in their domestic market, export more.”

“Until the new sources of energy supply can beat the current low prices coal will remain the leading source of heat and power and will meet something like a third of the world’s energy needs. The proportion burnt in high efficiency, low emission plants will rise but that will remain a fraction of the total for the foreseeable future, not least because coal users cannot afford the upgrades necessary. Coal is the energy source of choice, through necessity, of the poorer half of the world.”

“Times may be tough for the industry, and the continued use of coal in sub-critical technology may be bad for the environment, but like it or not coal is not in free fall.”

Other Interesting Articles

Bloomberg Businessweek

The Economist


A Wealth of Common Sense – The Dependability of Cycles 4/2

Bloomberg – People Are Paying to Work From Bars and Restaurants 4/3

FT – Active investing: a new hope 3/31

FT – Fed may start normalizing balance sheet later this year, Dudley says 3/31

FT – China’s Hollywood war chest threatened by poor ticket sales 4/1

FT – China cracks down on ‘financial ants’ smuggling cash to Hong Kong 4/1

FT – China’s Huishan tapped shadow banks as condition worsened 4/2

FT – China’s ‘bad banks’ thrive as alternative lenders 4/3

FT – Casino bosses will bet big to open Japan’s gaming industry 4/4

FT – Huishan saga exposes China’s tycoon finance risk 4/4

FT – Venezuelan bond sell-off accelerates as $2bn payment looms 4/4

FT – Cambodia scraps US military aid deal in latest snub to Washington 4/5

FT – Shanghai-listed shares have best day since August 4/5

FT – Middle Eastern oil producers still have strong hand 4/5

FT – Information asymmetry bedevils the oil market 4/5

MarketWatch – Americans are taking out the largest mortgages on record 4/5

NYT – Sears and Its Hedge Fund Owner, in Slow Decline Together 3/30

NYT – Stores Take Flight From Fifth Avenue in Manhattan 4/4

WP – The troubles at the American mall are coming to a boil 4/5

WSJ – Fed Sees Car Trouble Down South 3/30

WSJ – Why Americans Aren’t Spending Like They Used To 3/31

WSJ – If You Have 29 Credit Cards, You’re Probably a Millennial 3/31

WSJ – Buying a Home This Spring Will Be Hardest in Years 4/1

WSJ – Trouble Bubbling Under at Chinese Banks 4/3

WSJ – Why ECB’s Negative-Rate Policy Is Out of Order 4/3

WSJ – This Volatility Warning Has a Different Ring to It Today 4/3

WSJ – Macau Gambles on the High Rollers 4/3

WSJ – Economy Will Miss That New-Car Smell 4/4

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