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Perspective
Worthy Insights / Opinion Pieces / Advice
A Wealth of Common Sense – Greatest Hits From Michael Mauboussin & Meir Statman 6/6
- Mauboussin: “Perhaps the single greatest error in the investment business is a failure to distinguish between the knowledge of a company’s fundamentals and the expectations implied by the market price.”
- Statman: “Risk is not measured by standard deviation but rather by the probability of not getting to your goal.”
Real Estate
WSJ – Millions of Young People Shut Out of the Housing Market – Laura Kusisto 6/7
- “Roughly three million potential first-time home buyers have been shut out of the market over the last decade, according to a new study, suggesting the market’s recovery of the past few years could have been stronger.”
- “Tight lending standards and acute shortages of affordable housing in many markets have reduced the pool of potential buyers, particularly among young people, reducing a key component of housing demand.”
- “In all, the number of first-time U.S. home buyers averaged 1.5 million a year over the last decade, compared with the historical average of 1.8 million, according to a new study to be released Thursday by Genworth Mortgage Insurance that examines mortgage data from Fannie Mae, Freddie Mac, the Federal Housing Administration, Veterans Affairs and other sources. The study looked at data going back to 1994 and defined first-time buyers as anyone who hasn’t owned a home in the last three years.”
- “Lackluster demand for homeownership among younger people has been one of the main factors holding back the housing recovery. Many young people have been delaying buying homes due to tight credit, student loans and rising rents that have made it difficult to save for down payments.”
- “’What’s been missing is confidence,’ said Sam Khater, deputy chief economist at CoreLogic Inc.”
- “But that is starting to change. So far this year, first-time buyers represented about 38% of the market, greater than the historical average of 35%, according to Genworth. Some two million first-timers purchased homes last year, or 37% of the market.”
- “’We’ve had a very strong surge in first-time home buyers,’ said Tian Liu, chief economist at Genworth.”
- “Credit also appears to be loosening. According to Genworth, about 78% of first-time buyers are using low-down-payment loans, compared with the historical average of 73%.”
- “Economists said a wave of first-time buyers is likely coming over the next decade, as a large cohort in their mid-20s begin to buy homes.”
- “’As we’re seeing millennials age into homeownership, there’s a huge tailwind coming,’ said Nela Richardson, chief economist at Redfin.”
Energy
WSJ – An Energy Shock from the High Seas – Spencer Jakab 6/6
- “Circle January 2020 on your calendar for what could be a major disruption to the energy market and a jolt to the global economy.”
- “The origin of the problem isn’t some oil cartel’s machinations, a looming war or even a technological shift—it is a bureaucratic body that few people have heard of: the International Maritime Organization. Just 30 months from now the cargo vessels that are the lifeblood of global trade will be required to cut the sulfur content in their fuel from 3.5% to 0.5%.”
- “Ships move more than 10 billion tons of cargo a year and do it far more efficiently than road or rail, but it comes at a high cost in terms of overall pollution because ships use fuel oil, which is just about the cheapest, dirtiest stuff to come out of refineries. About 9% of all sulfur dioxide emitted globally comes from ships, contributing to acid rain and many premature deaths annually. Even the new cap is 500 times the sulfur content of most road diesel.”
- “While standards have changed for many fuels, the rapid nature of the switch means that, if shippers fully comply, there could be price spikes. Ships that currently use cheap high sulfur fuel oil will have to switch to some other source higher up in the product slate that comes out of refineries. Even with significant investment, refiners may not be ready and ships may have to burn more expensive marine diesel.”
- “Is the threat real? While energy traders mainly focus on the next several months, derivative prices indicate it is. For example, crude futures expiring in July 2020 are just 1% more expensive than those expiring in July 2017. By contrast, Rotterdam high sulfur fuel oil is 16% cheaper and New York ultralow sulfur diesel is 10% more expensive.”
Finance
FT – Global investors develop taste for US high-yield corporate bonds – Eric Platt 6/6
China
FT – China’s next ‘city from scratch’ called into question – Jamil Anderlini 6/6
- “When the Chinese government announced its plan to create a new city from scratch in a rural northern backwater of the country on April 1, the effect was immediate.”
- “Housing prices in the area tripled almost overnight as property speculators rushed to the area — about 100km south-west of Beijing — in the hopes of cashing in on the new project, described by state media as a ‘grand strategy crucial for a millennium to come’.”
- “Share prices for listed companies with even tenuous connections to the ‘Xiongan New Area’ soared as analysts estimated that up to $580bn — roughly the annual gross domestic product of Argentina — would be spent in the next few years on building up the new city, which will eventually cover an area twice the size of Hong Kong and nearly three times the size of New York City. The government is aiming for a population of 2.5m people as soon as 2030.”
- “The Xiongan plan draws on a blueprint that has been tried and tested in China before. As it was unveiled at the start of April, China’s state-controlled media hailed it as President Xi’s answer to the ‘special economic zones’ of Shenzhen and Pudong, both of which were launched under the auspices of China’s former paramount leader, Deng Xiaoping.”
- “However, critics of Xiongan point out that for every Shenzhen and Pudong there are scores of half-empty or failed ‘special economic zones’ now dotted across China.”
- “They argue that Xiongan shares none of the natural advantages of those earlier experimental cities, such as proximity to booming financial centers, world-class ports or enormous depots of international capital. They also worry about Beijing’s stated plan to exclude foreign investment, at least at the earliest stages, in favor of state investment and planning.”