Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense – Financial News Doesn’t Rhyme But It Does Repeat Itself – Ben Carlson 10/3

• “It’s important for investors to remember that investing based on the headlines is a bad idea. The fact that we have access to more information than ever these days is a great thing, assuming you have the correct filters in place. Most people don’t, so they become consumed by every little snippet or viral headline they glance at.”
• “One of these days one of these warnings will seem prescient. More likely than not, the next person or firm to ‘call’ the next bubble or crash will be more lucky than good.”

Project Syndicate – Deja Voodoo – Joseph Stiglitz 10/4

FT – Uber: The uncomfortable view from the driving seat – Leslie Hook 10/4

• “The ride-sharing group faces its biggest challenge: keeping its drivers, some of whom sleep in their cars to make ends meet.”

Markets / Economy

BlackRock – Economic Cycles in Context 10/4

Real Estate

WSJ – Retail Real Estate Holds Steady Despite Store Closures – Esther Fung 10/3

• “Overall, the retail vacancy rate across different types of malls and retail centers stayed flat at 10% in the third quarter from the second quarter, with asking rents rising 0.4% to $20.74 a square foot from the previous quarter and up 1.8% year-over-year.”
• “Lower construction activity helped to rein in supply and support occupancy levels. The volume of property completions, or properties that are developed and ready to be leased out, stood at 1.6 million square feet in the third quarter, which was the lowest level since 2014. The change in occupied retail space, or so-called net absorption, stood at 578,000 square feet, the lowest level since 2010.”
• “While the retail industry is facing headwinds from e-commerce, an oversupply of stores and fast-changing consumer tastes, the restaurant sector as well as grocery stores and fitness centers are continuing to expand, helping to cushion the blow, landlords say.”
• “In an August report, research and advisory firm IHL Group estimated there will be roughly 4,080 net store openings this year after taking into account 10,168 store closures. Apart from fast-food restaurants and beauty retailers, discount stores such as Dollar General and Dollar Tree are opening almost 2,000 new stores this year, the report added. Many of these dollar stores, however, will be in new build-to-suit locations rather than taking up existing retail space.”

Finance

Bloomberg – Trump Speaks and a $3.8 Trillion Market Hears an Existential Threat – Brian Chappatta 10/4

• You can imagine that every holder and seller of municipal debt heard it when President Trump indicated that Puerto Rico’s $74 billion in debt would be wiped out.
• The administration has since walked back from that ledge.

China

FT – Bond investors start to ask questions about Chinese takeovers – Robert Smith 10/3

• “More than 18 months after ChemChina’s $44bn agreement to purchase Swiss agribusiness Syngenta capped a buying spree by Chinese companies across Europe, debt investors and rating agencies are starting to ask tough questions.”
• “Their heightened scrutiny has left Syngenta’s investment grade rating in jeopardy, after Standard & Poor’s late on Monday put the company on review for a potential downgrade because of confusion over its support from the Chinese state.”
• “The Swiss seeds company was last week forced to postpone a $7bn bond deal, intended to refinance bridge loans backing ChemChina’s takeover, as investors questioned its ability to settle class-action litigation in the US while maintaining an investment grade rating.”
• Essentially, do they have State support or do they not? Who has priority to cash flows? And how much debt do they really have?
• “Before ChemChina’s acquisition, Syngenta carried strong single-A credit ratings, but Standard & Poor’s now pegs the company at the lowest rung of investment grade.”
• “Investors’ willingness to subject ChemChina’s financing to a more rigorous examination comes after China’s bank regulator earlier this year ordered domestic lenders to check the ‘systemic risk’ presented by ‘some large enterprises’ that have been acquiring companies overseas.”
• “That has caused tension for bondholders in European companies owned by private Chinese groups such as HNA and Anbang.”
• “’If you have implied support from the Chinese government, the ‘when’ and the ‘how’ are very important,’ Andrew Brady, an analyst at credit research firm CreditSights, says of state-owned ChemChina.”
• “’In Syngenta’s case, we have to now assume it won’t come to protect an investment grade rating. And if support comes in the form of a loan, weak protections in the bond’s documentation mean that they could get layered with secured debt, meaning the exact mechanism of support could damage bondholders.’”
• “As recently as August, S&P said in a report that ChemChina indicated that both it and China’s state-owned Assets Supervision and Administration Commission (Sasac) ‘remain committed’ to maintaining Syngenta’s investment grade rating ‘under all scenarios’.”
• “Crucially, the rating agency said that Sasac would need to provide support to mitigate litigation liabilities with equity, to ensure there is ‘no additional debt imposed on Syngenta or ChemChina’.”
• “A bond investor who looked at Syngenta’s proposed deal says that one of his biggest concerns was that it placed ‘absolutely no restrictions’ on the company’s ability to pay dividends to the heavily indebted ChemChina. S&P has projected that ChemChina will have a 10 to 13 times debt-to-ebitda ratio in 2017 and 2018.”
• “’Let’s not kid ourselves, you wouldn’t freely put money into any other 13 times levered chemicals company,’ the investor says.”
• “Lenders to European companies owned by large Chinese conglomerates have become increasingly focused on their ability to take cash out of the groups, with Swissport bondholders recently raising concerns after the airline services group started providing short-term loans to owner HNA.”
• “A second bond investor says that he is increasingly wary of having exposure to European businesses owned by highly levered Chinese companies, describing them as ‘black boxes’.”
• “’Nobody can be sure how much debt they have, or who really runs these businesses,’ he says.”