June 22, 2017

Perspective

Data Is Beautiful – Adult Obesity rates in the United States – zonination 6/20

Worthy Insights / Opinion Pieces / Advice

Project Syndicate – Brexit In Reverse? – George Soros 6/19

  • “Economic reality is beginning to catch up with the false hopes of many Britons. One year ago, when a slim majority voted for the United Kingdom’s withdrawal from the European Union, they believed the promises of the popular press, and of the politicians who backed the Leave campaign, that Brexit would not reduce their living standards. Indeed, in the year since, they have managed to maintain those standards by running up household debt.”

A Teachable Moment – How Can We Fix a Broken 403(b) System? – Anthony Isola 6/21

Markets / Economy

Reuters – For thousands of U.S. auto workers, downturn is already here – Nick Carey 6/21

Real Estate

WSJ – Avocado Toast Looks a Better Bet Than Australian Housing – Jacky Wong 6/20

  • “Chinese buyers have been gobbling up houses all over the world in recent years. There could be some nasty surprises when the buying stops.”
  • “There are already signs of imminent pain for the global property market, thanks to China’s efforts to stop money pouring out of the country. Inquiries from China for foreign real estate fell 31% in the first quarter from a year ago, according to Juwai.com, a portal that connects potential Chinese buyers to property listings overseas. For some of the most popular destinations, the drop was even bigger—42% for the U.S. and 39% for Australia.”
  • “The property market Down Under looks particularly vulnerable. China accounts for four in every five foreign buyers in Australia, with their interest a prime reason why home prices have surged to unaffordable levels: Prices in Sydney, for example, are up 72% since 2012.”
  • “Some are waking up to the potential trouble ahead, with Australia’s household debt now nearing 200% of disposable income. Moody’s downgraded 12 Australian banks and their affiliates Monday, citing rising risks associated with the housing market, following a similar move by Standard & Poor’s last month. The country’s four biggest banks alone have a $1.1 trillion exposure to Australian housing loans, making up 55% of their total portfolios, according to Morgan Stanley.”
  • “Worse still, nearly 40% of home loans now are interest-only, meaning borrowers don’t need to repay the principal for a certain period, usually five years. Such loans work fine when house prices keep rising. The worry now is that prices will start falling as Chinese buying interest wanes: Meanwhile, homeowners who have only had to pay interest on mortgages could see a rise in payments as the interest-only period on their loans expires.”

Energy

WSJ – Oil Returns to Bear Market – Stephanie Yang, Alison Sider, and Timothy Puko 6/20

  • “Prices are down 20.6% since Feb. 23, marking the sixth bear market for crude in four years and the first since August. Crude prices have lost 62% since settling at $115.06 a barrel three years ago. A bear market is typically defined as a decline of 20% or more from a recent peak, while a bull market is a gain of 20% or more from a recent trough.”

Finance

FT – Argentina’s 100-year bond cannot defy EM playbook forever – Jonathan Wheatley 6/20

  • “Really? A dollar-denominated bond that pays back 100 years from now, from a junk-rated country that has barely managed to stay solvent for more than half that time in its entire history as a creditor? While there is certainly an investment case for taking part, several analysts warn that this issue is a classic sign of a market getting ahead of itself.”
  • “The point, though, is not the 100 years. The complexities of bond math mean that, once maturities go beyond 30 years, the investment case barely changes. Barring default, with a yield of nearly 8%, the bond will repay investors in full in about 12 years, all else (such as inflation) being equal — and that’s leaving aside its resale value. Many investors will have much shorter horizons.”
  • “In a world starved of yield, the 7.91% on offer proved to be quite a pull and the bond attracted orders of $9.75bn for the $2.75bn issued. ‘People are looking out over the next 12 to 24 months and see a pretty positive outlook [for Argentina],’ says David Robbins, head of emerging markets at TCW in New York. ‘Duration in high yield is something they are more comfortable with.’ Argentina, he notes, is in effect selling equity in its economic recovery.”
  • “Sérgio Trigo Paz, head of emerging market fixed income portfolio management at BlackRock, says the rationale and the pricing are all good. But, he adds: ‘When you put it into perspective, it gives you a sense of déjà vu.’”
  • “He sees two scenarios. In one, the Fed is right about inflation and rates will continue to rise. This would turn the Argentine bond into ‘a bad experience’. In the other, markets are right, US inflation and payrolls will disappoint and we will be back in a low rate environment, which will be good for the bonds — until deflation rears its head again, hurting the Argentine economy and its ability to pay.”
  • “In the meantime, he says, there is a ‘Goldilocks’ middle ground in which investors can suck up an 8% coupon. Beyond that: ‘It doesn’t look good either way — which is why you get an inflection point.'”

Japan

FT – Toshiba picks government-backed group as chip unit buyer – Kana Inagaki and Leo Lewis 6/20

  • “After a chaotic months-long search for a buyer, Toshiba has picked a consortium led by a Japanese government-backed fund as the preferred bidder for its prized memory chip business.”
  • “The group — which includes the Innovation Network Corporation of Japan fund, private equity group Bain Capital and the Development Bank of Japan — competed against rival offers topping ¥2tn ($18bn) from US chipmaker Broadcom and Apple supplier Foxconn.”
  • “’Toshiba has determined that the consortium has presented the best proposal, not only in terms of valuation, but also in respect to certainty of closing, retention of employees, and maintenance of sensitive technology within Japan,’ the company said in a statement on Wednesday.”

South America

NYT – Venezuela Opens Inquiry Into a Critic: Its Attorney General – Nicholas Casey 6/20

  • Long a Chavista, attorney general Luisa Ortega is being investigated now that she has expressed concern at how far those in power are willing to go to quiet dissent.

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