August 7, 2017

If you were to read only one thing…

FT – Venezuela suspended from South American trade bloc – Andres Schipani 8/5

  • “South American trade bloc Mercosur has suspended Venezuela indefinitely in a symbolic show of force following President Nicolás Maduro’s decision to push ahead with an election for an all-powerful constituent assembly, which critics fear will crush the last vestiges of democracy in the crisis-ridden nation.”
  • “Foreign ministers of Argentina, Paraguay, Uruguay, and Brazil said after a meeting in São Paulo on Saturday that they have triggered its ‘democratic clause’ and decided ‘unanimously to suspend Venezuela from the bloc for a rupture of the democratic order’. They said they would not allow it back in the group until democracy is restored.”
  • “Mr. Maduro’s move to install the assembly has met widespread international condemnation, including from the Vatican on Friday. The two biggest exceptions are China and Russia. Beijing, which has loaned Caracas $60bn, said the elections were ‘generally held smoothly’, though noting ‘the reaction from all relevant sides’.” 
  • “Venezuelan attorney-general Luisa Ortega Díaz, who has become a vocal critic of Mr. Maduro’s government, had also filed a motion for a court order to block the constituent assembly’s installation. But on Saturday, Ms. Ortega Díaz was sacked as members of the constitutional assembly moved ahead with vows to swiftly punish foes.”
  • “For Raúl Gallegos, a Venezuela analyst at Control Risks: ‘The new assembly will give a new lease on life to the unpopular Maduro government. Maduro is far from cornered, despite violent anti-government protests and a hostile international community.’”

Perspective

NYT – Short Answers to Hard Questions About the Opioid Crisis – Josh Katz 8/3

Worthy Insights / Opinion Pieces / Advice

Bloomberg Quint – Paul Singer Says Passive Investing Is ‘Devouring Capitalism’ – Simone Foxman 8/4

FT – Venezuela shows how not to run a socialist government – Alan Beattie 8/3

  • “‘Venezuela shows that socialism always fails’ is perhaps one of the most common and least interesting reactions to the collapse of that country into economic and political chaos.”
  • “Without doubt, radical leftism accompanied by massive state intervention in the economy has a terrible record in Latin America, and indeed elsewhere — though whether that constitutes the entirety of ‘socialism’, given the prevalence of successful center-left, self-styled socialist parties in western Europe, is highly tendentious.”
  • “More interesting is whether progressive redistributive governments can ever succeed in poor countries marked by deep inequality. This particularly applies to those rich in minerals and hence vulnerable to the ‘resource curse’ that unbalances their economies and poisons their politics.”
  • “Venezuela shows what happens when it all goes wrong.”
  • “Meanwhile Bolivia, another, much poorer, South American country, has shown that it is perfectly possible to use oil and gas revenue to achieve widescale redistribution. In the 11 years that Evo Morales has served as Bolivia’s president — and despite a similar line in frothy revolutionary rhetoric to Messrs. Chávez and Maduro — he has managed to reduce the poverty rate in the country by a third while maintaining economic stability.”
  • “Mr. Morales must be one of the world’s few presidents who inveighs fervently against the iniquities of global capitalism while receiving regular plaudits from the International Monetary Fund. Like Mr. Chávez, he has increased social spending, though not always efficiently. Unlike Venezuela, Bolivia has maintained fiscal buffers, cushioning public spending from falls in the oil and gas price.”
  • “Meanwhile, although the rest of the economy remains under-developed, Mr. Morales’s government has been restrained in taking over private businesses, including those owned by foreign investors, and the currency has been pegged against the dollar at a reasonably competitive rate with free movement of capital.”
  • “The point is not that Mr. Morales is a technocratic wizard who has come up with an unprecedented way of managing natural resources. He has simply been one of the few leaders who has — thus far — managed to stop a mineral-rich country becoming an all-out scramble for loot.”
  • “There are serious reasons for concern about the political situation, including Mr. Morales’s plans to ignore a referendum barring him from seeking a fourth term in office, and some high-profile instances of corruption.”
  • “But economically, there is no particular reason that Bolivia’s redistributive model, whether or not called socialism, must collapse.”
  • “Venezuela is what happens when a corrupt and thuggish socialist regime gets hold of oil revenues and then destroys the economy. But it does not follow that large-scale income redistribution in a natural resource state must necessarily end in disaster.”

WSJ – Why Jobs, Wages and Savings Mean Weaker Profits – Justin Lahart 8/4

  • “Weak wage growth has Americans saving less. That can’t go on forever.”

Real Estate

FT – Debt investors cool on ailing US retail sector – Joe Rennison 8/3

  • The prophecy is becoming self-fulfilling. Want to see retail landlords really struggle… It probably won’t be from tenant fallout. However, if you cut off access to credit, it will only be a matter of time.
  • “The inclusion of loans to bricks-and-mortar retailers in commercial mortgage-backed securities has halved since 2010, as investors cool over providing financing for an industry under siege from ecommerce.” 
  • “The retail sector has accounted for an average of just over 24% of the loans underlying newly issued CMBS assessed by the credit rating agency Fitch. That is down from 31.4% last year and 51.5% in 2010. Figures from S&P Global, another rating agency, illustrate the same trend.”
  • “’The entire investor community is definitely more conscious of retail exposure and the quality of that retail exposure,’ said Darren King, a portfolio manager at Semper Capital. ‘There are fewer secondary and tertiary quality assets appearing in CMBS because of those concerns.’”
  • “As retail concentration has declined, mortgages on office properties have increased as a proportion of CMBS, in part thanks to investor demand. Offices comprise 43.3% of the CMBS transactions rated by Fitch so far in 2017, up from 28.7% in 2016.” 
  • “Following the election of Donald Trump in November, expectations of a stronger economy prompted analysts to forecast the need for more office space.”
  • “But Tracy Chen, head of structured credit at Brandywine Global Investment Management, said the prices of office-backed loans have begun to falter given the combination of tepid economic data and the new administration’s struggles to pass stimulative economic policies through Congress.”
  • “‘Office exposure has been increased to compensate the decline in retail. But business needs for space have reduced,’ she said. ‘You have multiple sectors to worry about.’”

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