The corporate drug industry has had many friends in Washington D.C. until now… Amazon is taking over the package room of your apartment building. China’s property boom unlikely to end anytime soon.

Headlines

Economist – The Philippine army recaptures a city seized by Muslim insurgents 10/17. After 5 months, the Philippine forces of President Rodrigo Duterte took back the city of Marawi on the island of Mindanao.

FT – Wanda golf courses closed in China austerity push 10/15. The two courses are in the $3bn Changbaishan resort in Fusong. The why – because new courses were banned in 2004; however, many developers were able to work their way around the rules…until now.

NYT – Kobe Steel Problems May Be More Widespread, Raising Fears on High-Speed Rail 10/12. So about that falsified data…we…didn’t…quite…tell…you…about…all…of…it…sorry.

WSJ – Nordstrom Family Suspends Effort to Take Retailer Private 10/16. That’s how strong the narrative is right now against the retail industry, even the Nordstrom family is having difficulty finding investors to fund the debt of the acquisition (despite the world being awash in cash and the tight spreads on high yield products).

WSJ – Hedge Fund Maverick Capital Debuts 0% Performance Fees 10/19. After losing 10% in 2016 and being down 2% so far this year (mind you that the market is up over the same time period), Maverick is offering some investors a 0% performance fee and 1% management fee on new money for its “recovery shares”.

Worthy Insights / Opinion Pieces / Advice

A Teachable Moment – Generation Kill – Anthony Isola 10/16

• “Young people are killing their chances of building wealth.”

A Wealth of Common Sense – How to Invest At All-Time Highs – Ben Carlson 10/18

• “The S&P 500 Index has recorded more than 150 new all-time highs since eclipsing its previous peak in late March of 2013. In 2017 alone, there have been 30 new record highs through the end of last week. To put this into perspective, there were only 13 new highs for the entire decade of the 2000s.”

BuzzFeed – Watching Harvey Weinstein Fall, Trump’s Accusers Feel Frustrated – Kendall Taggart & Jessica Garrison 10/14

Economist – Crafty app developers are ripping off big-name brands 10/12

• Be careful which apps you load onto your phones.

FT – Under Xi Jinping, China is turning back to dictatorship – Jamil Anderlini 10/10

• “The rejection of ‘western’ political systems has been made easier recently by what the Chinese see as the ludicrous buffoonery of Donald Trump and, to a lesser extent, the self-inflicted damage of Brexit and EU infighting.”
• “As a top foreign policy adviser recently told one of my colleagues: ‘Trump never talks about democracy or American leadership or liberty — we should not be so stupid to worship things that in the western world are now in doubt.’”
• Be cautious in your use of ‘private’ messaging services such as WeChat. Big brother is watching.

FT – Hollywood’s masculinity problem – the full picture – Kate Muir 10/12

FT – The implications of shelving the Aramco IPO – Nick Butler 10/14

FT – The disruptive power of renewables – Nick Butler 10/15

NYT – Stranded by Maria, Puerto Ricans Get Creative to Survive – Caitlin Dickerson 10/16

NYT – Inside a Secretive Group Where Women Are Branded – Barry Meier 10/17

• Another example of the power of peer pressure and social learning.

Project Syndicate – The Psychology of Superstar Sex Predators – Raj Persaud & Peter Bruggen 10/19

The Guardian – Meet the new class traitors who are coming out as rich – Alissa Quart 10/16

The New Yorker – Carl Ichan’s Failed Raid on Washington – Patrick Radden Keefe 8/28

Perspective

How Much – The Largest Industry In Each State by GDP – Raul 10/9

WEF – Tech Insider: World Forecasted Population Growth – Gerald Chirinda 10/11

How Much – Can you Retire on $1 Million? Here is How Long You Can Survive in Every State… – Raul 10/12

Top 5 Friendly States for Retirement

1. Mississippi  – $1 million lasts 25 yrs 6 months
2. Arkansas – $1 million lasts 25 yrs
3. Tennessee – $1 million lasts 24 yrs 5 months
4. Kansas – $1million lasts 24 yrs 5 months
5. Oklahoma – $1million lasts 24 yrs 4 months

Top 5 least Friendly States for Retirement

1. Hawaii – $1 million lasts 13 yrs 1 months
2. District of Columbia – $1 million lasts 14 yrs 2 months
3. California – $ 1million lasts 15 yrs
4. Oregon – $1 million lasts 16 yrs 7 months
5. New York – $1 million lasts 16 yrs 7 months

VC – The Global Leaders in R&D Spending, by Country and Company – Jeff Desjardins 10/13

Pew – Share of counties where whites are a minority has doubled since 1980 – Drew Desilver 7/1/15

How Much – Best US Cities for Families to Save Money – Raul 10/16

The Best Places for Families to Save Money

1. Spokane, WA; +$83,400
2. Henderson, NV; +$59,100
3. North Las Vegas, NV; +$56,600
4. Las Vegas, NV; +$55,900
5. Reno, NV; +$48,800

The Worst Places for Families to Save Money

1. San Francisco, CA; -$62,300
2. New York, NY; -$54,100
3. Boston, MA; -$34,000
4. Washington DC; -$22,200
5. Philadelphia, PA; -$9,100

VC – How Many Hours Americans Need to Work to Pay Their Mortgage – Jeff Desjardins 10/17

The Republic – Phoenix is getting hotter – and so is the danger – Brandon Loomis 10/18

Pew – Amid decline in international adoptions to U.S., boys outnumber girls for the first time – Abby Budiman and Mark Hugo Lopez 10/17

Bloomberg – Smartphones Are Killing Americans, But Nobody’s Counting – Kyle Stock, Lance Lambert, and David Ingold 10/17

Markets / Economy

Bloomberg Businessweek- Dollar General Hits a Gold Mine in Rural America 10/11

Bloomberg – The Glut of Private Jets Means ‘Insane’ Bargains for Buyers 10/8

Bloomberg – One of the Biggest ICOs Yet Crashes Before It Even Launched 10/19

WSJ – This Market’s Running on Hope, Not Profits 10/12

WSJ – Daily Shot: Bitcoin 10/17

Bloomberg – JPMorgan, Citigroup Expect More Credit-Card Users to Default – Hugh Son, Dakin Campbell and Jennifer Surane 10/12

Real Estate

Bloomberg Businessweek – Distressed Investors Are Already Buying Houston Homes for 40 Cents on the Dollar 10/12

WSJ – Global Investors Pour Billions Into Hudson Yards in Major Bull Market Bet 10/17

WSJ – How Some Malls Manage to Stay Alive Years After Losing Their Mojo 10/17

WSJ – In London, Some Home Buyers Can Only Stay a Few Years 10/19

WSJ – Daily Shot: John Burns RE Consulting – US Housing Supply Overview 10/17

WSJ – Daily Shot: FRED – Multifamily Housing Units Under Construction 10/19

Finance

Economist – Buttonwood: The finance industry ten years after the crisis 10/14

WSJ – Daily Shot: Commonwealth of Puerto Rico GO Bond 10/15

• “Puerto Rico’s general obligations (GO) debt keeps tumbling. The 8%-coupon bond ‘maturing’ in 2035 is trading at 33 cents on the dollar.”

WSJ – As Edward Jones Tops $1 Trillion in Assets, It Seeks Street Cred – Lisa Beilfuss 10/16

WSJ – Daily Shot: Corporate High-Yield Bond Spreads 10/18

Environment / Science

Economist – Offshore wind farms will change life in the sea 10/12

Bloomberg – There’s a Climate Bomb Under Your Feet 10/6

NYT – LIGO Detects Fierce Collision of Neutron Stars for the First Time – Dennis Overbye 10/16

Project Syndicate – Hurricanes’ Unnatural Toll 10/13

WSJ – Your Next Home Could Run on Batteries 10/15

Economist – Why the North American west is on fire 10/13

• “The west of the United States has endured some 50,000 wildfires this year, and over 8.5m acres (3.4m hectares) have burned. Northern California has suffered in particular recently as flames have swept through parts of the landscape, killing at least 23 people and devastating wineries. In Canada, as of August 30th (the latest available figure), 7.4m acres had burned.”
• “Ernesto Alvarado of the University of Washington, who specializes in large fires, says that historically portions of the forests of America’s north-west would burn every five to 20 years. In many areas, however, these fires have been suppressed for over a century by the needs of loggers and residents. Over time, undergrowth, saplings and dead trees accumulate, creating conditions in which a fire can spread very rapidly. Furthermore, a recent reduction in logging has led to an even closer packing together of trees. ‘To maintain good forest health in many of these forests, you need fire,’ says Dr. Alvarado. While some burns are prescribed, they are a fraction of what is required. In Washington, for instance, between 2001 and 2014 the Forest Service burned just 2% of the state’s 9.3m acres of forest.”
• “In terms of scale, 2017 is not actually an outlier. In the past decade, wildfires have burned an average of 6.6m acres each year in the United States and 6.2m acres in Canada. The particular problem this year is the dispersed nature of the blazes.”
• “The current state of the north-western forests, combined with the effects of climate change, increase the likelihood that wildfires will be worse in future… Little can be done to reduce the danger without a dramatic increase in prescribed burns, and these are unlikely as people continue to move into forested areas. One further consequence: the smoke and ash that drift across densely inhabited areas affect human health, too. A study by the universities of Harvard and Columbia of slash-and-burn fires in Indonesia in 2015 blamed the fires for 100,000 additional deaths and 500,000 injuries in Indonesia, Singapore and Malaysia. Where there’s smoke, there’s fire: this year’s haze presages years of potentially more ferocious burns.”

Asia – excluding China and Japan

NYT – U.S. Stood By as Indonesia Killed a Half-Million People, Papers Show 10/18

WSJ Video – Inside the Philippines’ Bloody War Against Islamist Militants 10/18

Canada

WSJ – Canada Imposes Tougher Mortgage Rules Effective 2018 – Paul Vieira and Vipal Monga 10/17

• “Canada’s banking watchdog unveiled tougher mortgage-financing rules that take effect on Jan. 1 that real estate watchers and economists say could dramatically slow house buying and borrowing.”
• “The most notable measure is a provision that would require all prospective buyers—even those with a down payment of over 20%—to undergo a so-called stress test before a bank can issue a loan. Previously, only buyers with a down payment of less than 20% had to undergo a stress test. Under the stress test, prospective buyers would have to qualify for a mortgage at a rate at whichever is greater: either 2 percentage points above the negotiated rate, or the Bank of Canada’s five-year benchmark rate. The central bank’s five-year rate stands at 4.89%. The regulator originally proposed the test just cover two percentages point above the negotiated mortgage.”
• “Robert McLister, founder of the Canadian mortgage-rate comparison site RateSpy.com, said the new rules target the fastest-growing part of the mortgage market—uninsured mortgages—and could affect one out of every six prospective home buyers. In Canada, mortgage insurance is mandatory unless the buyer has a down payment of 20% and over.”
• “’This is easily the most groundshaking mortgage rule of all time, and that’s not an understatement,’ Mr. McLister said in an interview.”
• “Economists said the tougher mortgage regulations will further hit a softening housing market. Recent data from the Canadian Real Estate Association indicated unadjusted sales in September were 11% below year-ago levels, and price growth has slowed considerably, especially in the Toronto market after the introduction of a foreign-buyer’s tax in southern Ontario.”
• “TD Bank’s economics team said it anticipates the measures will depress housing demand by 5% to 10% once fully implemented.”

China

FT – China’s $150bn debt-for-equity swap shows signs of fizzling 10/18

WEF – Deloitte: China will grow old before it gets rich – Alex Gray 10/6

WSJ – China’s Greatest Challenge – Anjani Trivedi 10/16

• Debt…

• NBFI = Nonbank Financial Institutions

FT – China residential property sales see first fall in 21/2 years – Hudson Lockett 10/18

• Okay, but look at the volatility. Geez.

Japan

WSJ – Corporate Scandals Say More About Japan Than the Nikkei 10/12

WSJ – Daily Shot: Moody’s Investor Service – Decline of Japan’s Working Age Population 10/18

Middle East

Reuters – Saudi needs Aramco billions as recession slows austerity drive 10/19

FT – Qatar’s wealth fund brings $20bn home to ease impact of embargo – Andrew England and Simeon Kerr 10/18

• “Qatar’s sovereign wealth fund has brought more than $20bn back onshore to cushion the impact of a regional embargo imposed on the Gulf state.”
• “Ali Shareef al-Emadi, Qatar’s finance minister, told the Financial Times that Qatar Investment Authority deposits were being used to create a ‘buffer’ and provide liquidity in the banking system after the gas-rich state suffered capital outflows of more than $30bn.”
• “That followed the decision by Saudi Arabia, the United Arab Emirates, Bahrain and Egypt to cut diplomatic and transport links with the nation in June. The move has triggered the Gulf’s worst crisis in years.”
• “Moody’s, the rating agency, said last month that Qatar had injected $38.5bn into its economy since the crisis erupted.”

WSJ – Daily Shot: BMI Research  – Saudi Arabia GDP Change Year-over-Year 10/17

South America

FT – IMF crunches the numbers for possible Venezuela rescue 10/15

Featured

WP – The drug industry’s triumph over the DEA – Scott Higham and Lenny Bernstein 10/15

• Let it be noted the power of this reporting resulted in Rep. Tom Marino withdrawing from consideration to lead the Office of National Drug Control Policy and it appears that the public is more aware of this problem…
• “In April 2016, at the height of the deadliest drug epidemic in U.S. history, Congress effectively stripped the Drug Enforcement Administration of its most potent weapon against large drug companies suspected of spilling prescription narcotics onto the nation’s streets.”
• “By then, the opioid war had claimed 200,000 lives, more than three times the number of U.S. military deaths in the Vietnam War. Overdose deaths continue to rise. There is no end in sight.”
• “A handful of members of Congress, allied with the nation’s major drug distributors, prevailed upon the DEA and the Justice Department to agree to a more industry-friendly law, undermining efforts to stanch the flow of pain pills, according to an investigation by The Washington Post and ’60 Minutes.’ The DEA had opposed the effort for years.”
• “The law was the crowning achievement of a multifaceted campaign by the drug industry to weaken aggressive DEA enforcement efforts against drug distribution companies that were supplying corrupt doctors and pharmacists who peddled narcotics to the black market. The industry worked behind the scenes with lobbyists and key members of Congress, pouring more than a million dollars into their election campaigns.”
• “The chief advocate of the law that hobbled the DEA was Rep. Tom Marino, a Pennsylvania Republican who is now President Trump’s nominee to become the nation’s next drug czar. Marino spent years trying to move the law through Congress. It passed after Sen. Orrin G. Hatch (R-Utah) negotiated a final version with the DEA.”
• “For years, some drug distributors were fined for repeatedly ignoring warnings from the DEA to shut down suspicious sales of hundreds of millions of pills, while they racked up billions of dollars in sales.”
• “The new law makes it virtually impossible for the DEA to freeze suspicious narcotic shipments from the companies, according to internal agency and Justice Department documents and an independent assessment by the DEA’s chief administrative law judge in a soon-to-be-published law review article. That powerful tool had allowed the agency to immediately prevent drugs from reaching the street.”
• “Political action committees representing the industry contributed at least $1.5 million to the 23 lawmakers who sponsored or co-sponsored four versions of the bill, including nearly $100,000 to Marino and $177,000 to Hatch. Overall, the drug industry spent $106 million lobbying Congress on the bill and other legislation between 2014 and 2016, according to lobbying reports.”
• 

WSJ – Amazon and Big Apartment Landlords Strike Deals on Package Delivery – Laura Kusisto 10/17

• “Amazon.com Inc. is taking over the package rooms of some of the country’s largest apartment landlords, in a move that could help consolidate its control over how goods make it from the warehouse floor to the front door.”
• “Amazon has signed contracts with apartment owners and managers representing more than 850,000 units across the U.S. to begin installing Amazon locker systems in their buildings, according to the landlords. Amazon has commitments to install the lockers in thousands of properties, many before the peak holiday shopping season, according to a person familiar with the matter.”
• “Several of the nation’s largest operators, AvalonBay Communities Inc., Equity Residential , Greystar and Bozzuto Group, have signed up, company executives said.
• For several years, landlords have struggled with how to manage the mountains of packages they receive each day. Staff at larger buildings end up devoting several hours a day sorting mail, while boxes are piled in every spare cranny. Most say it is the single largest problem they face.”
• “The locker program, dubbed Hub by Amazon, will accept packages from all carriers and not just for purchases made on Amazon. They will be open only to residents, not the wider community. Residents will receive a notification when they have a package and a code allowing them to open one of the slots.”
• “Apartment owners pay about $10,000 to $20,000 to purchase the lockers initially and don’t pay a monthly fee. Most landlords said they don’t plan to charge residents initially but to offer it as an amenity. They could also make back some of that cost in savings on staff labor.”
• “Karen Hollinger, vice president of corporate initiatives at AvalonBay, which has an ownership interest in about 80,000 apartments, said the average apartment community in the company’s portfolio receives some 1,000 packages a month, up from 650 a year ago. She said AvalonBay has seen a 20% to 30% annual increase in the volume of packages it receives for the past four years.”
• “Amazon has been searching for ways to make deliveries cheaper. It has recruited a fleet of citizen drivers via its Flex program, which allows people to drop off packages from their cars. It has developed its own air and cargo networks, too.”
• “The most expensive leg of any delivery is known as the last mile: getting a package to the doorstep. Amazon already has added lockers throughout the U.S., including an announcement that it is rolling them out at its newly acquired Whole Foods stores.”

FT – Chinese property boom props up Xi’s hopes for the economy – Tom Hancock & Gabriel Wildau 10/18

• “As China’s Communist party elite gather in Beijing this week to select its top leaders, President Xi Jinping has benefited from the strong recent performance of the economy, which is poised for its first year-on-year acceleration in growth since 2010. On Thursday China reported that gross domestic product grew 6.8% in the third quarter, ahead of Beijing’s full-year target.”
• “That rebound owes much to the confidence of homebuyers. Housing prices and construction starts rebounded from a slump in 2014-15, boosting overall business investment and driving demand for output from China’s huge manufacturing sector.”
• “The property sector has been given a helping hand. Urged on by Beijing, 38% of all bank loans issued in the 12 months to August were home mortgages, according to official data, and local governments purchased 18% of all residential floor space sold last year as part of a drive to provide affordable housing, according to estimates by E-House China Research Institute.”
• “The result has been another heady boom in construction. Rome was not built in a day, but based on residential floor area completed last year, China built the equivalent of a new Rome about every six weeks.”
• “With the surge in housing investment has come a round of questions about a potential bubble in the market and the implications for the long-term health of China’s economy.”
• “Some economists and investors warn that short-term growth from the latest housing boom has come at a cost: inflating a property bubble whose eventual bursting will inflict great pain. A senior Chinese legislator recently warned in unusually blunt terms that the economy has been ‘kidnapped’ by property.” 
• “But others insist that fears of a bubble are overstated. On this view, economic fundamentals justify substantial investment in housing, especially in inland cities where development still lags far behind wealthy coastal areas. These more sanguine observers also note that outrageous price levels for Chinese apartments are mainly restricted to the megacities like Beijing and Shanghai.” 
• “The stakes in this debate are high. Chinese residential property is arguably the world’s most important asset market. The sector drives global commodity prices, making the difference between growth and stagnation for resource exporters like Australia and Brazil.” 
• “’It’s never wrong to express worry over China’s housing market,’ says Larry Hu, China economist for Macquarie Securities in Hong Kong. ‘But it’s interesting to consider why the housing sector has become the Bermuda Triangle for economic forecasters. So many smart people have made wrong predictions about it.’”
• “The leading claim of the housing bears is that after a 15-year construction boom, China has built most of the housing it needs to meet fundamental demand. On this view, investors speculating on price gains, not families seeking shelter, now drive the market.”
• “’People buy property not because they like the property, but because the price is rising,’ says Ning Zhu, professor at the Shanghai Advanced Institute of Finance and author of China’s Guaranteed Bubble. ‘It’s this panic that if they don’t buy now they will never be able to afford it.’” 
• “Central to this narrative is the notion of ‘ghost cities’ — huge blocks of empty apartments where expected demand never materialized.” 
• “In Mr. Xi’s speech at the opening of the congress on Wednesday, he repeated his mantra that ‘houses are for living in, not for speculation’.”
• “Yet even in major cities, evidence suggests that there are a substantial number of empty flats held for investment purposes. A survey by FT Confidential Research, an independent research service owned by the Financial Times, found that 32% of families own at least one home that is vacant.” 
• “An estimated 50m homes, or 22% of the total urban housing stock, were vacant in 2013, according to the most recent data from the China Household Finance Survey led by Li Gan, economics professor at Texas A&M University.” 
• “Further underpinning the bearish outlook is the belief that fundamental demand for new housing is drying up.” 
• “The extraordinary transformation of China’s economy over the past 40 years was driven by the migration of farmers into cities. That urbanization process is now slowing, however, as relatively few young people remain in rural China.” 
• “The number of migrant workers living outside their home province rose by 12m in the five years through to June this year, compared with an increase of 26m in the five years ending June 2012, according to official data.” 
• Says Mr. Xie (Andy Xie, an independent economist and former Morgan Stanley chief Asia-Pacific economist): ‘If you go into villages, there are no young and middle-aged people any more. Where is this next wave of urbanization supposed to come from?’”
• “To longtime observers of China’s economy, the current hand-wringing over the property market feels familiar.”
• “After two years of falling prices and sluggish sales, analysts were warning in early 2016 that some smaller cities had enough unsold inventory to last for years.” 
• “Yet by August this year, inventories in the 80 cities tracked by E-House China Research Institute stood at their lowest level in almost five years.” 
• “Perceptions of unreasonably high housing prices appear to be disproportionately influenced by trends in first-tier cities — Beijing, Shanghai and Shenzhen. All three rank among the world’s most expensive in terms of price-to-income ratio.” 
• 
• “Of the 70 cities in the official price survey, however, 12 have seen outright price falls in the three years through to August this year. In a further 29 cities, prices rose by less than 10% in the same period. Meanwhile, median per capital disposable income has grown 28% in roughly the same period.”
• “Despite major concerns about Chinese corporate debt, household borrowing remains low by international standards at 37% of GDP, compared with 79% in the US and 59% in the euro area, according to the Bank for International Settlements. And Chinese homebuyers use less debt and more equity than counterparts in the US. The average down payment on Chinese home mortgages extended in 2016 was 40%.” 
• “Despite their differences, both sides in the debate mostly agree that an outright crash of the housing market is unlikely. Chinese savers have few options for investing their money. The stock market is volatile, returns on bank deposits are meagre and foreign exchange controls largely prevent households from buying foreign assets. Housing is the least bad option for many investors.” 
• “The combination of capital controls with years of monetary stimulus virtually ensures that ‘trapped cash’ will slosh through different asset classes, creating bubble-like conditions that the government either encourages or struggles to contain.” 
• “Still, given the pain that would result from an abrupt policy shift, analysts widely expect that Beijing will continue the current approach, tightening controls when the market gets too hot, while priming it with cash when it slows too sharply.” 
• “’The government is really losing its credibility,’ says Mr. Ning. ‘At this point everyone realizes they don’t really intend to crack down on the housing market.’”