If you were to read only one thing…

WSJ – Why Millennials Are (Partly) to Blame for the Housing Shortage – Laura Kusisto 5/22

• “For decades during the late-20th century, suburbs were the place to build, as urban cores suffered from high crime, poor schools and stagnant or shrinking populations.”
• “But preferences have changed among young people, many of whom want to live closer to transit, restaurants and their workplaces. The share of young, educated people living in the urban core of Washington, D.C., for example, increased 8.6 percentage points between 2000 and 2014, according to Jed Kolko, chief economist at job-search site Indeed and senior fellow at the Terner Center for Housing Innovation at the University of California, Berkeley. Portland, Ore., and Chicago each saw increases of 6.4 percentage points.”
• “As builders have shifted focus toward trendier urban markets and away from cheaper suburbs, they have produced less housing overall than they otherwise might have. While starter-home construction has bounced back in recent months, it remains far from reversing this long-term trend.”
• “At the same time, high land costs in central cities have pushed developers to focus on higher-end housing geared toward high earners instead of younger people just starting out.”
• “The shift helps explain one of the most vexing aspects of the housing recovery: New homes are getting more expensive and yet there are fewer of them being built than in past cycles.”
• “While new home sales within 5 miles of the centers of 10 of the country’s priciest and most densely populated metropolitan areas have surpassed levels from 2000, they remain more than 50% below where they were in 2000 when you go more than 10 miles out. The year 2000 is often used as a benchmark for a normal market, before the boom and bust of the mid-2000s.”
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• “The takeaway, Mr. Romem (chief economist at BuildZoom) says, is that pricey cities need to loosen land-use restrictions in core areas where there is more demand. Allowing for more high-rise condo buildings would make it economical to produce starter homes in these areas as well.”
• “’Do you care about preserving things the way they are, so that only wealthy people can continue buying in, or do you want to [encourage more density], so that housing is more affordable for everyone?’ he asked.”

Perspective

WSJ – Brazilian Bribery Allegations Escalate Clash Between Government, Business 5/21

WSJ – Daily Shot: JBS Payments to Government Officials in Brazil 5/22

• Seriously?

Real Estate

WSJ – Blackstone is Taking Over Mom-and-Pop Real-Estate Investing – Peter Grant 5/23

• “Blackstone in January launched its first nontraded real-estate investment trust, a vehicle marketed to small investors as a way to participate in the commercial real-estate industry without the volatility of a traded REIT. Such vehicles have faced mounting criticism in recent years over high fees, poor disclosure and other problems.”
• “Yet as of April, Blackstone Real Estate Income Trust Inc. had raised $755.4 million, about 41% of all the funds the entire industry raised in 2017, far more than any competitor, according to Robert A. Stanger & Co., an investment bank that specializes in nontraded REITs.”
• “Blackstone also has become a closely watched agent for change in an industry that is trying to move away from a past that is tangled up in scandal and regulatory criticism. Like many of the new breed of nontraded REITs, Blackstone’s vehicle is structured to align the interests of investors and management better than those of the past.”
• “The alignment between REIT managers and investors is critical today as the eight-year bull market in the commercial real-estate industry shows signs of slowing, critics say. Mistakes on reading markets could trigger losses, especially if values start to decline.”
• “Some traditional nontraded REITs were criticized because managers wouldn’t be penalized for making bad investment decisions. That isn’t the case with the Blackstone REIT.”
• “’If things don’t go well, Blackstone won’t make as much,’ said Phil Owens, managing director of Green Street Advisors’ consulting unit. ‘If things go really well, they make more.'”
• “Green Street has been a critic of nontraded REITs for their high fees, weak disclosure and lack of alignment. Mr. Owens said the Blackstone structure represents ‘a big shift’.”
• “But Mr. Owens stopped short of backing away from Green Street’s longstanding position that investors are better off buying traded REITs, which are listed on public stock exchanges, than nontraded ones. Green Street has calculated the overhead of the Blackstone REIT will be about twice as much as a ‘large, blue-chip publicly traded REIT’ if it performs as expected.”
• “Until recently, nontraded REITs were popular because of the high dividends they paid when interest rates were near historic lows. Mostly sold by financial advisers, the vehicles raised $19.6 billion in 2013 and $15.6 billion in 2014, according to Stanger.”
• “But the industry drew criticism for upfront fees that could run as high as 15%.”
• “In all, the entire nontraded REIT industry has raised only $1.8 billion in 2017 as of the end of April, about the same as the first four months of 2016, the worst fundraising year since 2002, when the industry was in its early stages, according to Stanger.”
• “Some other nontraded REIT sponsors say they aren’t worried about the new 800-pound competitor. They acknowledge the fundraising climate is tough these days. But they blame it primarily on their sales forces reacting to Finra rules and the proposed Labor Department regulations.”
• “’It’s not Blackstone that’s impacting it,’ said Jeff Hanson, chief executive of American Healthcare Investors, which has raised more than $6 billion in equity for four nontraded REITs. Mr. Hanson predicted that Blackstone entering the business will be ‘a good thing over time’ for the industry.”

Energy

WSJ – Daily Shot: eia – OPEC Net Oil Export Revenues 5/22

FT – Oil majors seek survival in transition to low-carbon world – Andrew Ward 5/22

• “’In our 109-year history, it is unlikely that there has ever been as much change as there is now,’ Carl-Henric Svanberg, chairman of BP, told shareholders at the UK group’s annual meeting last week, acknowledging that over the next 20 years ‘consumption of oil will slow and eventually peak’.”
• “For all the looming risks, fossil fuels still dominate the global energy landscape. Oil, gas and coal together account for 86% of energy used for transport, heat and power worldwide. The questions for companies and investors across the sector are how fast will this change and what should they do to prepare?”
• “Deep disruption is already being felt in the power sector. The electricity generated from renewables, excluding hydro, doubled globally between 2010 and 2015 as political efforts to tackle climate change intensified and the cost of wind and solar plummeted. Today, renewables account for an average 23% of global power output. Denmark has breezy days when all its power comes from wind and Germany hit a record 85% share from renewables one day last month.”

Finance

WSJ – Only Robots Can Tally What The Largest U.S. Pension Fund Pays In Fees – Heather Gillers and Dawn Lim 5/22

• “If you’re using software to deal with the complexity in your portfolio maybe you should simplify your portfolio first.” – Marc Levine, Chair – Illinois State Board of Investment

Agriculture 

WSJ – Daily Shot: Wolf Street – Delinquencies of Agricultural Loans 5/22

WSJ – Daily Shot: CBOT Wheat 5/22

China

FT – MSCI to make decision on China A-share inclusion on June 20 – Pan Kwan Yuk 5/22

• “Mark your calendars China watchers.”
• “MSCI will on June 20 announce whether it would finally include China’s domestic A-shares in its global indices.”
• MSCI has declined to do so on three previous occasions. Now may be the time.

FT – China’s environmental clean-up to have big impact on industry – Alan Clark 5/22

• “…environmental sustainability is rapidly moving up the agenda for Xi Jinping, the president, as he flexes his political muscles and consolidates his leadership of China.”
• “The country’s moves to protect the environment and avoid pollution-related social unrest represent a radical shift in Chinese policy. Just eight years ago, China viewed climate change initiatives as a western conspiracy to limit China’s rapid growth.”
• “In the aluminum-producing, coal-consuming provinces around Beijing, Henan, Shanxi and Shandong, around 30 per cent of aluminum smelting capacity could potentially be closed between November and March every year, in an effort to reduce thick smog like that seen in the first weeks of 2017.”
• “There is also talk of an envisaged 30% cut to alumina production in the same provinces, reducing supply of the key raw material required to produce aluminum.”
• “While tighter regulations governing environmental protection and energy consumption were issued two years ago by the Chinese government, this year many more smelters are being threatened with the off button. The Chinese government’s new Air Pollution Prevention and Control Action Plan is aimed at offsetting the extra pollution created by the use of indoor heating during the winter heating months.”
• “It should be acknowledged that China has been successful in cutting the use of coal, which currently provides around 70% of the country’s electricity. Coal consumption has dropped in each of the last three years and fell 4.7% last year alone.”

Other Links

Reuters – Uber inadvertently underpaid New York City drivers for over two years 5/23