Month: November 2017

November 10, 2017

Perspective

Pew – How U.S. refugee resettlement in each state has shifted since 2002 – Jynnah Radford 11/2

  • Animation

WSJ – Daily Shot: Convoy Investments – Rise and Fall of Some Famous Asset Bubbles 11/9

Worthy Insights / Opinion Pieces / Advice

NYT – How to Reduce Shootings – Nicholas Kristof and Bill Marsh 11/6

NYT – Want Kids, a Degree or a Home? The Tax Bill Would Cost You – The Editorial Board

  • “An immense tax giveaway to the rich will hurt everyone else. Here’s how.”

Markets / Economy

WSJ – Daily Shot: Yardeni Research – Investor Bulls vs Bears 11/7

Real Estate

Business Insider – Zillow: America’s red-hot housing market is a bit of a problem – Akin Oyedele 11/8

  • “The recovery in US house prices since the recession has created a so-called seller’s market.” 
  • “In this part of the cycle, housing inventory is tight, especially in big cities where there’s plenty of demand. But buyers in these markets are getting stretched as prices climb above their prerecession highs and choices remain limited.”  

Energy

WSJ – Daily Shot: OPEC – Growth in energy demand by fuel type and region 11/9

WSJ – Daily Shot: OPEC – Energy demand next five years 11/9

Finance

WSJ – Daily Shot: LCD – Cov-Lite European Leveraged Loans 11/9

China

WSJ – Daily Shot: BMI Research – China Wealth Management Products 11/9

  • “Beijing’s deleveraging drive is having an impact on wealth management products (WMPs).”

Europe

FT – Germany creates third gender in ruling hailed as ‘revolution’ – Tobias Buck 11/8

  • “Germans will in future be able to register officially as neither male or female, after the country’s constitutional court issued a ruling establishing a third gender option that was hailed by intersex campaigners as a ‘revolution’.”

South America

FT – Venezuela inches closer to a formal default – Robin Wigglesworth 11/9

  • “Venezuela is closer to a formal default on its debts, with a global derivatives body set to rule on whether credit insurance should be paid out after a crucial payment deadline missed by state-backed oil company PDVSA.”
  • “Venezuela and PDVSA are legally separate entities, so PDVSA’s default would not trigger Venezuelan CDS or a Venezuelan sovereign default. But there are myriad other overdue interest payments by both borrowers, and unless the money appears soon then Venezuela will be in formal default on all its international bonds.”
  • “Venezuela has summoned bondholders for negotiations in Caracas on November 13, but the talks are expected to yield little. Indeed, US investors will be wary of even attending, given that the person leading the Venezuelan side of the talks, vice-president Tareck El Aissami, has been sanctioned by the US Treasury as an alleged drug smuggler.”
  • “None of the big rating agencies have formally declared a default yet, but S&P Global Ratings on Monday lowered the country’s rating to CC, the second-lowest rung possible, and said there was a 50% chance of a default within three months.”

November 9, 2017

If you were only to read one thing…

Bloomberg – America’s ‘Retail Apocalypse’ Is Really Just Beginning – Matt Townsend, Jenny Surane, Emma Orr, and Christopher Cannon 11/8

  • “The so-called retail apocalypse has become so ingrained in the U.S. that it now has the distinction of its own Wikipedia entry.”
  • “The industry’s response to that kind of doomsday description has included blaming the media for hyping the troubles of a few well-known chains as proof of a systemic meltdown. There is some truth to that. In the U.S., retailers announced more than 3,000 store openings in the first three quarters of this year.”
  • “But chains also said 6,800 would close. And this comes when there’s sky-high consumer confidence, unemployment is historically low and the U.S. economy keeps growing. Those are normally all ingredients for a retail boom, yet more chains are filing for bankruptcy and rated distressed than during the financial crisis. That’s caused an increase in the number of delinquent loan payments by malls and shopping centers.”
  • “The reason isn’t as simple as Amazon.com Inc. taking market share or twenty-somethings spending more on experiences than things. The root cause is that many of these long-standing chains are overloaded with debt—often from leveraged buyouts led by private equity firms. There are billions in borrowings on the balance sheets of troubled retailers, and sustaining that load is only going to become harder—even for healthy chains.”
  • “The debt coming due, along with America’s over-stored suburbs and the continued gains of online shopping, has all the makings of a disaster. The spillover will likely flow far and wide across the U.S. economy. There will be displaced low-income workers, shrinking local tax bases and investor losses on stocks, bonds and real estate. If today is considered a retail apocalypse, then what’s coming next could truly be scary.”
  • “Until this year, struggling retailers have largely been able to avoid bankruptcy by refinancing to buy more time. But the market has shifted, with the negative view on retail pushing investors to reconsider lending to them. Toys “R” Us Inc. served as an early sign of what might lie ahead. It surprised investors in September by filing for bankruptcy—the third-largest retail bankruptcy in U.S. history—after struggling to refinance just $400 million of its $5 billion in debt. And its results were mostly stable, with profitability increasing amid a small drop in sales.”
  • “Making matters more difficult is the explosive amount of risky debt owed by retail coming due over the next five years.”
  • “Just $100 million of high-yield retail borrowings were set to mature this year, but that will increase to $1.9 billion in 2018, according to Fitch Ratings Inc. And from 2019 to 2025, it will balloon to an annual average of almost $5 billion. The amount of retail debt considered risky is also rising. Over the past year, high-yield bonds outstanding gained 20%, to $35 billion, and the industry’s leveraged loans are up 15%, to $152 billion, according to Bloomberg data.”
  • “Even worse, this will hit as a record $1 trillion in high-yield debt for all industries comes due over the next five years, according to Moody’s. The surge in demand for refinancing is also likely to come just as credit markets tighten and become much less accommodating to distressed borrowers.”
  • “Retailers have pushed off a reckoning because interest rates have been historically low from all the money the Federal Reserve has pumped into the economy since the financial crisis. That’s made investing in riskier debt—and the higher return it brings—more attractive. But with the Fed now raising rates, that demand will soften. That may leave many chains struggling to refinance, especially with the bearishness on retail only increasing.”
  • “One testament to that negativity on retail came earlier this year, when Nordstrom Inc.’s founding family tried to take the department-store chain private. They eventually gave up because lenders were asking for 13% interest, about twice the typical rate for retailers.”
  • “Store credit cards pose additional worries. Synchrony Financial, the largest private-label card issuer, has already had to increase reserves to help cover loan losses this year. And Citigroup Inc., the world’s largest card issuer, said collection rates on its retail portfolio are declining. One reason that’s been cited is that shoppers are more willing to stop paying back a card from a chain if the store they went to has closed.”
  • “The ripple effect could also be a direct hit to the industry that is the largest employer of Americans at the low end of the income scale. The most recent government statistics show that salespeople and cashiers in the industry total 8 million.”
  • “During the height of the financial crisis, store workers felt the brunt of the pain when 1.2 million jobs disappeared, or one in seven of all the positions lost from 2008 to 2009, according to the Department of Labor. Since the crisis, employment has been increasing, including in the retail industry, but that correlation ended as jobs at stores sank by 101,000 this year.”
  • “The drop coincides with a rapid acceleration in store closings as bankruptcies surge and many of the nation’s largest retailers, including Wal-Mart Stores Inc. and Target Corp., have decided that they have too much space. Even before the e-commerce boom, the U.S. was considered over-stored—the result of investors pouring money into commercial real estate decades earlier as the suburbs boomed. All those buildings needed to be filled with stores, and that demand got the attention of venture capital. The result was the birth of the big-box era of massive stores in nearly every category—from office suppliers like Staples Inc. to pet retailers such as PetSmart Inc. and Petco Animal Supplies, Inc.”
  • “Now that boom is finally going bust. Through the third quarter of this year, 6,752 locations were scheduled to shutter in the U.S., excluding grocery stores and restaurants, according to the International Council of Shopping Centers. That’s more than double the 2016 total and is close to surpassing the all-time high of 6,900 in 2008, during the depths of the financial crisis. Apparel chains have by far taken the biggest hit, with 2,500 locations closing. Department stores were hammered, too, with Macy’s Inc., Sears Holdings Corp. and J.C. Penney Co. downsizing. In all, about 550 department stores closed, equating to 43 million square feet, or about half the total.”
  • “One response to the loss of store-based retail jobs is to note that the industry is adding positions at distribution centers to bolster its online operations. While that is true, many displaced retail workers don’t live near a shipping facility. The hiring also skews more toward men, as they make up two-thirds of the workforce, and retail store employees are 60% women.”
  • “The coming wave of risky retail debt maturities doesn’t take into account that companies currently considered stable by ratings agencies also have loads of borrowings. Just among the eight publicly-traded department stores, there is about $24 billion in debt, and only two of those—Sears Holdings Corp. and Bon-Ton Stores Inc.—are rated distressed by Moody’s.”
  • “’A pall has been cast on retail,’ said Charlie O’Shea, a retail analyst for Moody’s. ‘A day of reckoning is coming.’”

Perspective

FT – Forbes says Wilbur Ross lied about being a billionaire – Lindsay Fortado and Shawn Donnan 11/7

  • “Forbes business magazine has booted US secretary of commerce Wilbur Ross off its list of the richest people in America for the first time in 13 years, alleging he lied to them about his net worth by more than $2bn.”

FT – Electric cars’ green image blackens beneath the bonnet – Patrick McGee 11/7

  • “Nico Meilhan, a Paris-based car analyst and energy expert at Frost & Sullivan, says regulators should not encourage this race to sell electric vehicles with bigger batteries. ‘It’s a race, but it’s a very stupid race. It’s not towards a good solution,’ he says. ‘If you switch from oil to cobalt and lithium, you have not addressed any problem, you have just switched your problem.’”
  • “Instead, he says regulators should take weight into account by taxing heavier vehicles and creating incentives for smaller models in both electric and traditional vehicles.”
  • “Mr. Meilhan points out that petrol-engine cars weighing just 500kg — such as the French Ligier microcar or some popular ‘kei cars’ in Japan — emit less lifecycle emissions than a mid-sized electric vehicle even when driven in France, where carbon-free nuclear power generates three-quarters of electricity.”
  • “’If we really cared about CO2,’ he adds, ‘we’d reduce car size and weight.’”

WSJ – Jet-Set Debt Collectors Join a Lucrative Game: Hunting the Superrich – Margot Patrick 11/7

  • “Private investigators spend millions, scour globe, chasing an estimated $2 trillion in pending claims.”

Worthy Insights / Opinion Pieces / Advice

Economist – Asian households binge on debt 11/2

  • “What should be good news for the global economy has its downsides.”

FT – The House of Trump and the House of Saud – Edward Luce 11/8

  • “The blossoming relationship with Riyadh symbolizes the decay of the US-led order.”

Markets / Economy

Business Insider – Someone deleted some code in a popular cryptocurrency wallet – and as much as $280 million in ether is locked up – Becky Peterson 11/7

  • “An estimated $280 million worth of the cryptocurrency ether is locked up because of one person’s mistake.”
  • “An unidentified user accidentally deleted the code library required to use recently created digital wallets within Parity, a popular digital-wallet provider, according to a security alert posted on the company’s blog on Tuesday.”
  • “The freeze affects all multi-signature wallets created on Parity after July 20.”
  • “Multi-sig wallets are especially popular among cryptocurrency startups and other groups because they require more than one person to agree before any currency gets moved around. It’s a safeguard against rogue employees who might want to run off with the money.”

WSJ – Clamor for Tech IPOs Reaches Fever Pitch in Asia – Saumya Vaishampayan and Steven Russolillo 11/8

  • “Nearly three quarters of the 66 tech floats in the first nine months of 2017 have been in Asia, and the companies have raised about 40% of the total $16.8 billion from the sector, according to a report by PricewaterhouseCoopers.”
  • “Shares of newly public companies in Asia, on average, have risen by 141% from their IPO prices this year through the end of October, according to Dealogic. That compares with an average 25% gain for U.S. IPOs and a 13% increase for new issues in Europe.”

WSJ – Daily Shot: FRED – US Student Loan Balance 11/8

Real Estate

WSJ – Republican Tax Plan Would Slam California Housing Market – Laura Kusisto 11/8

  • “Limits on mortgage-interest deduction would affect many buyers in coastal regions around the U.S.”

WSJ – Co-Working Trend Eats Into Office Demand – Peter Grant 11/7

  • “The co-working trend, popularized by startup businesses like WeWork Cos., has been attractive to entrepreneurs and small companies looking for communal office space and short-term commitments.”
  • “But it could turn out badly for landlords, according to a new report from Green Street Advisors. The report predicts co-working will detract from cumulative office demand through 2030 by about 2% to 3% as the shared working space approach spreads from small businesses to large ones.”
  • “The report estimates there will be about 14,000 co-working locations world-wide by the end of this year, compared with 600 in 2010. WeWork alone has more than 20 locations in London and is now among New York’s largest office tenants, it says.”
  • “’The most ominous prospect for landlords is that [corporate] users could ‘outsource’ big chunks of their headquarters and regional offices to co-working operators,’ the report warns.”
  • “Consider the new business that WeWork launched earlier this year that creates tailored WeWork centers for big companies that employ hundreds or even thousands of workers. Named Onsite Solutions, it is marketing itself to employers that have flexible office space requirements or who want to circulate employees through hipper environments than their traditional workplaces.”
  • “Mr. Reagan (Jed Reagan, Green Street analyst) said such initiatives have the potential to hurt office landlords because co-working facilities typically require less space: about 75 square feet per worker compared with 175 square feet in traditional offices. Also, co-working leases for big tenants tend to be six months to five years, much shorter than the common lease term of five to 15 years, he said.”
  • “’That could undermine the stability and security of cash flow for landlords and could create more churn among tenants,’ Mr. Reagan said.”

India

FT – One year on, jury is still out on India’s ‘black money’ ban – Amy Kazmin 11/7

  • “Economy has slowed and cash in circulation is 90% of previous level, data show.”

South America

FT – Venezuela’s debt struggle poses more questions for investors – Robin Wigglesworth 11/7

  • “Analysts and investors say there are more questions than answers surrounding Venezuela’s plans to ‘refinance and restructure’ its financial liabilities.”
  • “Venezuela has about $63bn of foreign bonds outstanding, according to Torino Capital, while the central bank estimates the country’s overall foreign debts at about $90bn. The real number say most analysts is much higher.” 
  • “PDVSA, the state oil company, has sold $28.6bn of bonds and owes billions of dollars more in ‘promissory notes’. Venezuela owes another $4bn or so to creditors that have taken it to the World Bank’s ICSID court. Stuart Culverhouse, chief economist at Exotix, thinks total public sector external debts range between $100bn and $150bn.”
  • “Even this is uncertain. Venezuelan president Nicolás Maduro has mentioned ‘refinancing’ and ‘restructuring’ the country’s external liabilities. But a refinancing usually implies something voluntary while a restructuring means forcibly ‘haircutting’ creditors. Crucially, US sanctions imposed this summer in practice means both options are off the table.” 
  • “That Mr. Maduro named vice-president Tareck El Aissami as the lead negotiator with bondholders complicates matters further. Mr. Aissami has himself been sanctioned by the US as an alleged narcotics trafficker, which means US investment groups — the biggest holders of Venezuelan debt — cannot enter talks with him.” 
  • “’The logistics seem almost impossible,’ notes Siobhan Morden, head of Latin American fixed income strategy at Nomura. ‘The cynical interpretation is that the impossible deadline for negotiations conveniently shifts the blame of default to bondholders for their unwillingness (inability) to negotiate.’”
  • “With a competent government and more orthodox economic policies, Venezuela could probably handle its debt burden. Although oil exports are declining, it still boasts the world’s largest proven reserves and prices are at their highest level for more than two years.”
  • “But chronic mismanagement by governments under Hugo Chávez and now Mr. Maduro and the oil slump has taken its toll. According to the IMF, the economy has shrunk by a third over the past five years.”
  • “The country’s options appear limited. Venezuela is overdue on the interest payments on bonds that mature in 2019, 2024, 2025 and 2026, demonstrating the ‘significant fiscal strain’ the country is facing, S&P notes. Foreign currency reserves are below $10bn — and much of this is in gold that will be hard to liquidate. China is wary of deepening its financial exposure to Venezuela while the country has already restructured some of its bilateral loans from Russia.”
  • “The price of Venezuela’s bond maturing in August next year has tumbled from 72 cents on the dollar to about 34 cents this week, as investors panicked after the restructuring announcement and bank traders pulled out of the market, causing prices to ‘gap’ lower.” 
  • “Russia could provide a loan secured by Venezuelan oil assets that the government could either use to pay creditors, or to buy back some of its bonds at their current big price discount.” 
  • “Venezuela could also seek to improve its fiscal space by separating PDVSA from the state, defaulting on the latter debts while staying current on the oil company’s bonds. That could in theory prevent creditors from interrupting PDVSA’s oil sales, while letting Venezuela’s sovereign creditors stew. Suing countries is much harder than companies with assets that can be seized.”
  • “Moreover, ringfencing PDVSA from the government will be tricky. Crystallex, a Canadian miner, is already suing Venezuela and arguing that PSDVA is the ‘alter ego’ of the state. If Crystallex wins, it opens the door for all creditors to try to seize Venezuelan and PDVSA assets interchangeably.” 
  • “The most likely outcome, investors and analysts say, is a protracted period of financial limbo, with a restructuring precluded by US sanctions and Venezuela facing a barrage of lawsuits that will tie it up for years to come.”

November 8, 2017

If you were only to read one thing…

What Explains U.S. Mass Shootings? International Comparisons Suggest an Answer – Max Fisher and Josh Keller 11/7

  • “When the world looks at the United States, it sees a land of exceptions: a time-tested if noisy democracy, a crusader in foreign policy, an exporter of beloved music and film.”
  • “But there is one quirk that consistently puzzles America’s fans and critics alike. Why, they ask, does it experience so many mass shootings?”
  • “Perhaps, some speculate, it is because American society is unusually violent. Or its racial divisions have frayed the bonds of society. Or its citizens lack proper mental care under a health care system that draws frequent derision abroad.”
  • “These explanations share one thing in common: Though seemingly sensible, all have been debunked by research on shootings elsewhere in the world. Instead, an ever-growing body of research consistently reaches the same conclusion.”
  • “The only variable that can explain the high rate of mass shootings in America is its astronomical number of guns.”
  • “The United States also has some of the world’s weakest controls over who may buy a gun and what sorts of guns may be owned.”
  • “Switzerland has the second-highest gun ownership rate of any developed country, about half that of the United States. Its gun homicide rate in 2004 was 7.7 per million people — unusually high, in keeping with the relationship between gun ownership and murders, but still a fraction of the rate in the United States.”
  • “Swiss gun laws are more stringent, setting a higher bar for securing and keeping a license, for selling guns and for the types of guns that can be owned. Such laws reflect more than just tighter restrictions. They imply a different way of thinking about guns, as something that citizens must affirmatively earn the right to own.”
  • “The United States is one of only three countries, along with Mexico and Guatemala, that begin with the opposite assumption: that people have an inherent right to own guns.”
  • “The main reason American regulation of gun ownership is so weak may be the fact that the trade-offs are simply given a different weight in the United States than they are anywhere else.”
  • “After Britain had a mass shooting in 1987, the country instituted strict gun control laws. So did Australia after a 1996 incident. But the United States has repeatedly faced the same calculus and determined that relatively unregulated gun ownership is worth the cost to society.”
  • “That choice, more than any statistic or regulation, is what most sets the United States apart.”
  • “’In retrospect Sandy Hook marked the end of the US gun control debate,’ Dan Hodges, a British journalist, wrote in a post on Twitter two years ago, referring to the 2012 attack that killed 20 young students at an elementary school in Connecticut. ‘Once America decided killing children was bearable, it was over.’”

Perspective

NYT – How Business Titans, Pop Stars and Royals Hide Their Wealth – Scott Shane, Spencer Woodman, and Michael Forsythe 11/7

Visual Capitalist – Animation: The Rapidly Aging Western World – Jeff Desjardins 11/7

WSJ – Coming Soon to Campus: The $100,000 Hotel Room – Laine Higgins 11/6

  • “Texas A&M is charging alums six figures for the right to book a hotel room next to the football stadium, as universities look for extra perks to market for wealthy donors.”
  • Why, because they can. LSU appears to have initiated this approach in 2011, but not for as much money nor for a set term. Rest assured, they quickly fixed that.

Worthy Insights / Opinion Pieces / Advice

Economist – Why you should remember Mueller’s job description – Leaders 11/4

  • “Unlike the three separate congressional inquiries into Russian government meddling in last year’s election, Mr Mueller is authorized to prosecute anyone who committed a federal crime. The purpose of Mr Mueller’s investigation is not to take down Mr Trump. It is to make it harder for foreign governments to interfere in future elections.“
  • “That is an aim all Americans should be able to unite behind. Instead, Mr Mueller’s probe has become the latest territory for an uncomprehending shouting match between partisans. The keyboard warriors at the Internet Research Agency in St Petersburg, Russia’s best-known troll farm, might like to imagine that this is all their doing. In reality, though, the Russian meddling in America which, in the judgment of the intelligence services, took place last year is now being followed by open season for Americans to turn on each other.”
  • “To gauge the degree of partisan intoxication, recall that, as recently as 2012, the Republican presidential candidate identified Russia as America’s number one foreign-policy threat. Mr Trump’s election has turned this on its head. Republicans are now half as likely to say that Russia poses a big threat to national security as Democrats are. Around 35% of Republicans express ‘confidence’ in Vladimir Putin. No, that is not a misprint. The power of partisan thinking has created a favorable audience for the idea of firing Mr Mueller.”

Economist – Should regulators block CVS from buying Aetna? – Leaders 11/4

  • “America has a competition problem. Market concentration has risen in more than three-quarters of industries since the late 1990s. Concentration has led to higher profits and higher returns for shareholders at the expense of consumers. Antitrust authorities have become more supine: between 1970 and 1999, regulators brought an average of 16 cases a year in order to prevent big firms from becoming even bigger; between 2000 and 2014, that number fell below three.”

Inc. – 20 Years Ago, Jeff Bezos Said This 1 Thing Separates People Who Achieve Lasting Success From Those Who Don’t – Jeff Haden 11/6

NYT – The ‘Click’ Moment: How the Weinstein Scandal Unleashed a Tsunami – Jessica Bennett 11/5

Project Syndicate – How Americans Became Vulnerable to Russian Disinformation – Kent Harrington 11/7

  • “Social media moguls’ disregard for facts may have facilitated Russian interference in the 2016 US presidential election. But Russia’s success in peddling bogus news via Twitter and Facebook exposed more fundamental problems: a poorly educated electorate and a news industry that has become concentrated in ever-fewer hands.”
  • “Last week, Congress unveiled legislation that would force Facebook, Google, and other social media giants to disclose who buys online advertising, thereby closing a loophole that Russia exploited during the election. But making amends through technical fixes and public promises to be better corporate citizens will solve only the most publicized problem.”
  • “The tougher challenge will be strengthening institutions that are vital to the functioning of democracy – specifically, civics education and local journalism. Until gains are made in these areas, the threat to America’s democratic process will grow, resurfacing every time the country votes.”
  • “Russian President Vladimir Putin’s intelligence operatives chose wisely in mounting their social media attack. Facebook hosts nearly 80% of all mobile social media traffic, while Google accounts for close to 90% of all online-search-related advertising. By inundating these two platforms with automated messages from tens of thousands of bogus user accounts, Russia was able to stoke discord along economic, racial, and political lines.”
  • “Moreover, they did it cheaply. According to one analysis, with only modest ad purchases on Facebook, Russian agents gained access to a goldmine of online advertising data – such as Facebook’s customer targeting software – which enabled the ‘sharing’ of Russia’s fake news hundreds of millions of times. At one point during this clandestine assault, an estimated 400,000 bots – software applications that run automated scripts – sent millions of fictitious political messages, which in turn generated some 20% of all Twitter traffic during the final month of the campaign.”
  • “It is bad enough that the technology world’s marquee names were not prepared to parry foreign meddling in America’s most important election. But the social media giants’ persistent denial of responsibility for the volume of distorted and false information delivered as news, even as Russia’s role has grown clearer, is more troubling.”
  • “Strip away the technobabble about better algorithms, more transparency, and commitment to truth, and Silicon Valley’s ‘fixes’ dodge a simple fact: its technologies are not designed to sort truth from falsehoods, check accuracy, or correct mistakes. Just the opposite: they are built to maximize clicks, shares, and ‘likes’.”
  • “Still, Russia’s success in targeting American voters with bogus news could not have succeeded were it not for the second problem: a poorly educated electorate susceptible to manipulation. The erosion of civics education in schools, the shuttering of local newspapers – and the consequent decline in the public’s understanding of issues and the political process – conspire to create fertile ground for the sowing of disinformation.”
  • “Consider the evidence: In 2005, an American Bar Association survey found that 50% of Americans could not correctly identify the country’s three branches of government. By the time the Annenberg Center for Public Policy asked the same question in 2015, the percentage of such respondents had grown to two thirds, and a staggering 32% could not name a single branch. This slippage is apparently age-dependent; a 2016 study of Americans with university degrees found that those over 65 years of age know far more about how their government works than those under 34.”
  • “High school or university courses by themselves will not keep gullible voters from falling for bogus news or inflammatory disinformation. But the viral spread of fake news stories initiated by Russian agents made one thing clear: an electorate lacking a basic civics education is more likely to fall for provocations designed to inflame partisan tensions.”

A Teachable Moment – TIAA, You’re No Vanguard – Anthony Isola 11/6

Real Estate

WSJ – Mall Landlord Taubman Sues Saks Fifth Avenue Over Puerto Rico Store – Esther Fung 11/3

  • It appears that Saks is dragging its feet in repairing its store in the Mall of San Juan. Taubman is using a condition of its lease to prod it along.

WSJ – Millennial Home Buyers Send a Chill Through Rental Markets – Peter Grant and Laura Kusisto 11/7

  • “Rising homeownership is adding to the jitters in the residential rental market, which has slumped recently after a long stretch near the top of the commercial real-estate industry.”
  • “For most of the current economic expansion, declining ownership rates have enabled landlords of apartments and single-family homes to raise rents far faster than the pace of inflation. Demand has been fueled by the millions of people who haven’t had the money, credit or desire to pursue the traditional American dream.”
  • “But amid a hot housing market, the homeownership rate is now rising, in part because millennials are reaching the age when they’re forming families and settling down.”
  • “The Census Bureau last week reported that ownership increased to 63.9% in the third quarter, the highest level since 2014. The rate was up from 63.7% in the second quarter and 63.5% a year earlier. It remains below the 69% clocked at the peak of the housing bubble a decade ago.”
  • “Still, the recent trend is causing analysts and investors to wonder whether the rental market’s good times are coming to an end.”
  • “One early warning sign came last week, when American Homes 4 Rent, which owns more than 50,000 single-family properties across 22 states, reported disappointing revenue growth for the third quarter. Analysts will be closely watching earnings from two other big companies with similar portfolios. Invitation Homes Inc. and Starwood Waypoint Homes , which agreed in August to merge, will both report results on Wednesday.”
  • “Many analysts predict that any pain that rising homeownership causes to the rental sector will be felt by these companies first, before renters of luxury apartments in big cities, for two reasons. First, house-for-rent companies tend to own properties in more affordable, nonurban markets. Second, people living in such homes have already opted for the single-family home lifestyle and so are more likely to become a homeowner.”
  • “Some multifamily investors aren’t too worried about rising homeownership, however, because new housing construction continues to lag behind the rate of household formation, even with the surge in rental housing development taken into account. Since 2010, household formation has outpaced construction by about 3.5 million units, according to CoStar Group Inc.”
  • “But Wall Street is closely watching demographic trends, particularly marriage rates among millennials—a life change often accompanied by a shift from renting to owning.”
  • “Millennials have been getting married later in life, often waiting until their late 20s, according to Mr. Chang (John Chang, head of research), of Marcus & Millichap. Their marriage rate over the next five years will likely play an important role in demand for apartments and houses.”
  • “We’re at the leading edge of transition.” – John Chang.

 

November 7, 2017

If you were only to read one thing…

Vice – Motherboard: One Bitcoin Transaction Now Uses as Much Energy as Your House in a Week – Christopher Malmo 11/1

  • “Bitcoin’s incredible price run to break over $7,000 this year has sent its overall electricity consumption soaring, as people worldwide bring more energy-hungry computers online to mine the digital currency.”
  • “An index from cryptocurrency analyst Alex de Vries, aka Digiconomist, estimates that with prices the way they are now, it would be profitable for Bitcoin miners to burn through over 24 terawatt-hours of electricity annually as they compete to solve increasingly difficult cryptographic puzzles to ‘mine’ more Bitcoins. That’s about as much as Nigeria, a country of 186 million people, uses in a year.”
  • “This averages out to a shocking 215 kilowatt-hours (KWh) of juice used by miners for each Bitcoin transaction (there are currently about 300,000 transactions per day). Since the average American household consumes 901 KWh per month, each Bitcoin transfer represents enough energy to run a comfortable house, and everything in it, for nearly a week. On a larger scale, De Vries’ index shows that bitcoin miners worldwide could be using enough electricity to at any given time to power about 2.26 million American homes.”
  • “It’s worth asking ourselves hard questions about Bitcoin’s environmental footprint.”
  • “Since 2015, Bitcoin’s electricity consumption has been very high compared to conventional digital payment methods. This is because the dollar price of Bitcoin is directly proportional to the amount of electricity that can profitably be used to mine it. As the price rises, miners add more computing power to chase new Bitcoins and transaction fees.”
  • “…at a minimum, worldwide Bitcoin mining could power the daily needs of 821,940 average American homes.”
  • “Put another way, global Bitcoin mining represents a minimum of 77KWh of energy consumed per Bitcoin transaction.”
  • “Digiconomist’s less optimistic estimate for per-transaction energy costs now sits at around 215 KWh of electricity. That’s more than enough to fill two Tesla batteries, run an efficient fridge/freezer for a full year, or boil 1872 litres of water in a kettle.”
  • “…it’s quite clear that even at the minimum level of 77 KWh per transaction, we have a problem. At 215 KWh, we have an even bigger problem.”
  • “That problem is carbon emissions. De Vries has come up with some estimates by diving into data made available on a coal-powered Bitcoin mine in Mongolia. He concluded that this single mine is responsible for 8,000 to 13,000 kg CO2 emissions per Bitcoin it mines, and 24,000 – 40,000 kg of CO2 per hour.”
  • “As Twitter user Matthias Bartosik noted in some similar estimates, the average European car emits 0.1181 kg of CO2 per kilometer driven. So for every hour the Mongolian Bitcoin mine operates, it’s responsible for (at least) the CO2 equivalent of over 203,000 car kilometers travelled.”
  • “As goes the Bitcoin price, so goes its electricity consumption, and therefore its overall carbon emissions. I asked de Vries whether it was possible for Bitcoin to scale its way out of this problem.”
  • “‘Blockchain is inefficient tech by design, as we create trust by building a system based on distrust. If you only trust yourself and a set of rules (the software), then you have to validate everything that happens against these rules yourself. That is the life of a blockchain node,’ he said via direct message.”
  • “This gets to the heart of Bitcoin’s core innovation, and also its core compromise. In order to achieve a functional, trustworthy decentralized payment system, Bitcoin imposes some very costly inefficiencies on participants, for example voracious electricity consumption and low transaction capacity. Proposed improvements, like SegWit2x, do promise to increase the number of transactions Bitcoin can handle by at least double, and decrease network congestion. But since Bitcoin is thousands of times less efficient per transaction than a credit card network, it will need to get thousands of times better.”
  • “In the context of climate change, raging wildfires, and record-breaking hurricanes, it’s worth asking ourselves hard questions about Bitcoin’s environmental footprint, and what we want to use it for. Do most transactions actually need to bypass trusted third parties like banks and credit card companies, which can operate much more efficiently than Bitcoin’s decentralized network? Imperfect as these financial institutions are, for most of us, the answer is very likely no.”

Perspective

Visual Capitalist – Visualizing Household Income Distribution in the U.S. by State – Jeff Desjardins 11/6

Worthy Insights / Opinion Pieces / Advice

FT – Why we need to regulate the tech platforms – Rana Foroohar 11/5

  • “Companies should be made to open up the black box of their algorithms.”

Markets / Economy

NYT – A Bull Market Should Make Investors Happy. This One Isn’t. – Landon Thomas Jr. 11/5

  • “Rarely has a bull market been so unloved. Since March 2009, the Standard & Poor’s 500 stock index has nearly quadrupled in value. This year, not only is the index up 15 percent, but it also seems to have stopped going down at all: October was the 12th straight month that the S.&P. has logged a positive return, the first time that has happened since 1935.”
  • “Yet in most conversations about the ever-rising stock market, brokers and investment advisers say, are dominated by the question of when it will all come to an end.”
  • “These days, each successive stock market record seems to spur more hand-wringing than cheerleading. There is anxiety about overhyped shares, about the possibility of central banks withdrawing their support for global economies, even about markets simply being worryingly quiescent, as evidenced by the historically low readings of the volatility index known as the VIX.”
  • “In fact, many analysts say that this so-called wall of worry is a positive sign. Investors may be piling into stocks and bonds, the thinking goes, but they are doing it with a measure of hesitation, which prevents some of the excesses that preceded previous market corrections.”

Environment / Science

FT – HSBC promises $100bn to fight climate change – Andrew Ward 11/5

  • “Bank to support projects aimed at reducing carbon emissions.”

China

WSJ – Downgrades Shadow Moody’s S&P’s Push Into China – Shen Hong, Manju Dalal, and Gunjan Banerji 11/6

  • “As ratings firms plot entry into long-coveted market, questions remain as to China’s openness to international raters.”

Middle East

NYT – Saudi Crown Prince’s Mass Purge Upends a Longstanding System – David D. Kirkpatrick 11/5

  • “A midnight blitz of arrests ordered by the crown prince of Saudi Arabia over the weekend has ensnared dozens of its most influential figures, including 11 of his royal cousins, in what by Sunday appeared to be the most sweeping transformation in the kingdom’s governance for more than eight decades.”
  • “The arrests, ordered by Crown Prince Mohammed bin Salman without formal charges or any legal process, were presented as a crackdown on corruption. They caught both the kingdom’s richest investor, Prince Alwaleed bin Talal, and the most potent remaining rival to the crown prince’s power: Prince Mutaib bin Abdullah, a favored son of the late King Abdullah.”
  • “All members of the royal family were barred from leaving the country, American officials tracking the developments said on Sunday.”
  • “With the new detentions, Crown Prince Mohammed, King Salman’s favored son and key adviser, now appears to have established control over all three Saudi security services — the military, internal security services and national guard.”
  • “’It is the coup de grâce of the old system,’ said Chas W. Freeman, a former United States ambassador. ‘Gone. All power has now been concentrated in the hands of Mohammed bin Salman.’”
  • “Crown Prince Mohammed’s haste, however, may now come at a price, because the lack of transparency or due process surrounding the anticorruption crackdown is sure to unnerve the same private investors he hopes to attract — including through a planned stock offering of the huge state oil company, Aramco.”
  • “Saudi Arabian businessmen and royals anxious about the crown prince’s plans were quietly moving assets out of the country even before the arrests.”
  • “The Saudi Arabian news media, however, celebrated the arrests as a long-awaited cleanup, appealing to populist resentment of self-enrichment enjoyed by the sprawling royal family and its closest allies.”
  • “Almost everyone in the capital, Riyadh, and other big cities like Jidda has heard stories about princes absconding with vast sums that had been allocated for a public project.”
  • “The arrests are ‘a frontal assault on some members of the royal family and the impunity with which they have operated in the past,’ said Bernard Haykel, a professor at Princeton University who studies Saudi Arabia.”
  • “’It was something that had to be done,’ he said, even though the absence of a judicial process ‘sends a chill down the spine of foreign investors.’”

South America

WSJ – Daily Shot: Venezuela 10yr Government Bond Yield 11/3

  • Markets reacting to news that Venezuela wants to restructure its debt (finally…)

WSJ – Daily Shot: Venezuela 5yr Sovereign CDS Spread (bps) 11/3

WSJ – Daily Shot: Venezuela Econ – Black Market Exchange Rate – Bolivar to USD 11/6

November 6, 2017

If you were only to read one thing…

FT – Venezuela debt restructuring could unleash crisis – John Paul Rathbone 11/3

  • “President Nicolás Maduro’s decision to restructure Venezuela’s $89bn of debt is likely to unleash a debt crisis of a size not suffered in Latin America since Argentina’s massive 2001 default, and a bond restructuring that lawyers say would be the world’s most complex yet.”
  • “In a televised address on Thursday, Mr Maduro said state oil company PDVSA would make one more $1.1bn debt payment on a bond due in 2017 and then restructure its remaining obligations with banks and investors.”
  • “Economists have long-predicted Venezuela would eventually make such a move as funds drained from the socialist government’s vaults to pay bondholders, forcing an 80% cutback in imports over the past five years. Indeed, Venezuelan bonds already trade at default prices, and foreign reserves of $10bn are near 20-year lows.”
  • “Yet despite a recession worse than the Great Depression, hyperinflation and falling oil production, debt restructuring was a move Mr Maduro long-rejected. In large part, that was because it could lead to default, and creditors would then seize Venezuelan oil shipments and foreign assets, including PDVSA’S US refinery, Citgo. “
  • “As a result, the $7bn that Venezuela might save in 2018 from not servicing its debts would be offset by lost oil exports, and there would be no net gain.”
  • “That calculus still holds. Indeed, a desire to remain on good terms with creditors may explain Mr Maduro’s apparently nonsensical decision to restructure debts after making a particularly large bond payment this week — more than $1bn that instead could be used to import desperately-needed medicine and food. (A more cynical rumor is that the money went to government insiders who own the paid 2017 bond.)”
  • “Venezuelan imports are forecast to be just $13bn this year. Against that, the country has $63bn of traded debt, owes another $5bn to international lenders such as InterAmerican Development Bank, $17bn to China and another $3bn to Russia.
  • One reason why Mr Maduro may feel he can get away with it is that he feels empowered politically at home.”
  • “Although Mr Maduro may feel in control domestically, abroad is another matter. Any debt restructuring is complicated by US sanctions imposed in August, which block US-regulated institutions and investors from buying new Venezuelan bonds, as would be issued in a typical debt restructuring.”
  • “Adding to the difficulties, vice-president Tareck El-Aissami, who will lead the process, has been sanctioned by the US for alleged drug-trafficking and money laundering.”
  • “Furthermore, even if Venezuela seeks to get around the US sanctions by issuing restructured bonds in other currencies, authority for that would come from the Constituent Assembly — which Canada, the EU, the US, and 11 of Latin America’s biggest countries, including Brazil and Mexico, do not recognize.”
  • “Renowned economists such as Ricardo Hausmann have long said Venezuela should restructure its debt, as they consider paying bondholders while Venezuelans go hungry to be immoral. But they recommend it as part of a broader economic restructuring backed by the International Monetary Fund.”
  • “Indeed, the IMF has already crunched the numbers on the amount of help — upwards of $30bn annually — that could accompany such an approach. But international institutions will not extend such help to a government that has become a by-word in corruption and economic mismanagement — and is now near-bankrupt despite the world’s largest energy reserves.”
  • “Government insiders stole $300bn of the $1tn windfall that Venezuela received during the oil price boom of the 2000s, according to disaffected former ministers. Meanwhile, a socialist government that claims to help the poor presides over a country where 82% of households live in poverty — twice as high as when it came to power in 1999.”

Perspective

Business Insider – Tens of millions of Americans are being left out of the economic recovery – and it’s easier than ever to see who they are – Pedro Nicolaci da Costa 10/18

  • “A new online interactive tool helps Americans visualize just how economically divided the nation has become — and it’s not a pretty picture.”
  • “The country’s deep income and wealth inequalities, which match levels not seen since before the Great Depression, have been widely reported.”
  • “But the Distressed Communities Index, published by a Washington-based nonprofit called Economic Innovation Group (EIG), adds some startling new detail and localized specificity to the widening and persistent gap between the country’s rich and poor, the worst of any ‘advanced’ economy.”
  • “The US economy has, on paper, been recovering from the Great Recession since the summer of 2009. Recently, growth has hovered around 2% a year, and the unemployment rate has fallen to just 4.4%.”
  • “Still, many have yet to feel the gains of this rebound, which is among the longest in modern history but also the weakest.”
  • “‘It is fair to wonder whether a recovery that excludes tens of millions of Americans and thousands of communities deserves to be called a recovery at all,’ EIG says in its Distressed Communities Index report.”
  • “Here are some depressing findings from the EIG report, which finds that more than 52 million Americans are living in distressed ZIP codes:”
    • “Job growth in distressed ZIP codes was negative on average from 2011 to 2015, trailing the average prosperous ZIP code by more than 30 percentage points.”
    • “Distressed ZIP codes were the only group in which the number of both jobs and business establishments declined during the national recovery.”
    • “Most distressed ZIP codes contain fewer jobs and places of business today than they did in 2000.”
    • “Distressed ZIP codes contain 35% of the country’s ‘brownfield’ sites marked by ‘the presence or potential presence of a hazardous substance, pollutant, or contaminant.'”
    • “58% of adults in distressed ZIP codes have no education beyond high school.”

  • “Meanwhile, on the right side of the tracks:”
    • “88% of prosperous ZIP codes experienced job growth from 2011 to 2015, and 85% saw rising numbers of business establishments.”
    • “Prosperous ZIP codes have dominated the recovery, generating 52% of the country’s new jobs and 57% of its net new business establishments from 2011 to 2015.”
    • “Adults with any level of postsecondary education are more likely to live in a prosperous ZIP code than any other type of community.”
    • “45% of those with advanced degrees live in prosperous ZIP codes, more than in the bottom three quintiles of ZIP codes combined.”
  • “For the poorest Americans, ‘stagnation and decline were the rule, not the exception.'”

NYT – Six Charts That Help Explain the Republican Tax Plan – Alicia Parlapiano 11/2

Pew – More Americans are turning to multiple social media sites for news – Elizabeth Grieco 11/2

  • This is crazy.

WSJ – America’s Most Popular Type of Beer Is in Free Fall – Jennifer Maloney 11/1

  • “The big three U.S. light-lager brands—Bud Light, Coors Light and Miller Lite—are all losing volume as consumers shift to craft and Mexican import beers as well as to wine and spirits.”
  • “Retail store sales of Bud Light, Coors Light and Miller Lite are down 5.7%, 3.6% and 1.6%, respectively, this year through Oct. 21, according to Nielsen data compiled by Beer Marketer’s Insights. From 2010 through 2016, overall volumes in the light-lager category fell 14% to 65 million barrels.”
  • “The silver lining, at least for Molson Coors, is that both Miller Lite and Coors Light are gaining share on market leader Bud Light.”
  • “Meanwhile, Denver-based Molson Coors has a team looking at the potential impact legalized cannabis could have on its beer sales, as well as possible opportunities for investment, Mr. Hunter (Mark Hunter, CEO of Molson Coors) said. Constellation Brands said earlier this week that it is taking a 9.9% stake in Canadian cannabis company Canopy Growth Corp. and plans to develop nonalcoholic, marijuana-infused beverages.”

WSJ – Daily Shot: J.D. Power – American Awareness of the Equifax Data Breach 11/3

Worthy Insights / Opinion Pieces / Advice

FT – The challenge of Xi Jinping’s Leninist autocracy – Martin Wolf 10/31

  • “Democracies have to recognize their failures to counter a China that sees itself as an ideological rival.”

FT – A way to poke Facebook off its uncontested perch – Tim Harford 11/2

  • “The new tech titans need serious competition. For a social network, serious competition needs new rules to enable it.”

NYT – What Donald Trump Thinks It Takes to Be a Man – Jill Filipovic 11/2

South China Morning Post – The bubble economy is set to burst, and US elections may well be the trigger – Andy Xie 10/8

WSJ – Who Will Rein In Facebook? Challengers Are Lining Up – Christopher Mims 10/29

Markets / Economy

WSJ – Daily Shot: Bitcoin 11/2

Real Estate

FT – Li Ka-shing to sell stake in HK skyscraper for record $5.2bn – Don Weinland 11/2

  • While I already covered this from a Jacky Wong article in the WSJ, here are some more details.
  • Li Ka-shing’s “CK Asset stands to make a gain of HK$14.5bn ($1.88bn)  on the sale of The Center, according to a stock exchange filing.”
  • And this was only on a portion of the building…
  • “CK Asset owns 48 floors of office space in the 73-story building, as well as shopping space, car parks, basements and the entrance hall. The sale of those properties equates to HK$33,000 ($4,269) per square foot.”
  • For the buyer, CHMT Peaceful Development Asia Property Limited (majority controlled by China Energy Reserve & Chemicals Group), “the investment yield on the building was about 2.5%, according to Mr Cheng” (Raymond Cheng, an analyst at CIMB Securities).

China

FT – Beijing moves to tighten oversight of Chinese companies investing offshore – Gabriel Wildau 11/2

  • “China’s state planning agency issued draft guidelines on outbound investment on Friday that require companies to seek approval for some foreign deals even if they are conducted through an offshore entity, an effort to assert greater control over even some foreign activities that don’t involve cross-border fund flows.”
  • “In an explanatory notice accompanying the new rules issued for public comment, the National Development and Reform Commission said that ‘some foreign investment activities have drifted outside the boundaries of current supervision, and definite hidden risks exist.’”
  • “Deals that don’t involve investment by mainland Chinese entities or cross-border fund movements are generally not subject to regulation by Chinese authorities. But the latest rules from NDRC require that a Chinese parent company get the agency’s approval for deals worth more than $300m in ‘sensitive’ sectors, even if the deal is conducted purely through offshore subsidiaries.”

Japan

WSJ – Daily Shot: Japan Household Confidence 11/2

WSJ – Daily Shot: Nikkei-225 Stock Average 11/2

Middle East

FT – Saudi Arabia arrests princes, ministers and tycoons in purge – Ahmed Al Omran and Simeon Kerr 11/4

  • “Global investor (and one of the world’s richest people) Prince Alwaleed among those detained as Prince Mohammed consolidates power.”
  • The official aim is to weed out corruption.

November 3, 2017

Perspective

FT – Asian billionaires outnumber US ones for first time – Josef Stadler 11/1

FT – Global gender gap will take 100 years to close, says WEF study – Sarah Gordon 11/1

  • “The global gender gap will take 100 years to close at the current rate of change, according to new World Economic Forum research.”
  • “The WEF’s annual report into gender equality found increasing inequality at the workplace and in political representation, contributing to its calculation that it would take a century to reach overall gender parity compared with its estimate last year of 83 years.”
  • “According to the WEF’s metrics — which take into account disparities between men and women in health and education, as well as politics and the workplace — the world has closed 68% of the gap between total gender inequality and total equality.”
  • “This level is slightly worse than the figures for 2016 and 2015, when the gender gap was 68.3 and 68.1%, respectively, and represents the first widening of the gap since the WEF began such calculations 11 years ago.”
  • “Of the 142 countries covered in the 2017 report, the gender gap had increased in 82, with countries such as Kenya, Brazil, Japan and India regressing in terms of the number of women in ministerial roles, while countries including Mexico, South Africa and Spain made less progress towards offering women equal economic opportunities.”
  • “Iceland remains the world’s most gender-equal country, while the US dropped four places to 49 in the country rankings because, in particular, of a significant decline in the number of women holding ministerial positions. The US’s political empowerment measure is at its lowest level since 2007.”
  • “The top three countries in the index are all Nordic but among the non-European countries in the top ten are Rwanda in fourth place, Nicaragua in sixth place and the Philippines in tenth place.”
  • “The region of the world with the smallest gender gap is western Europe, which has closed 75% of the gap, followed by North America and eastern Europe.”
  • “The Middle East and north Africa is the lowest-ranked region, having closed the gap by an average of 60%, and is home to four of the world’s five lowest-ranking countries on female political empowerment: Kuwait, Lebanon, Qatar and Yemen.”

NYT – Trump’s Female Accusers Feel Forgotten. A Lawsuit May Change That. – Megan Twohey 11/1

Worthy Insights / Opinion Pieces / Advice

Economist – Donald Trump misreads Britain’s crime statistics 10/28

  • “Mr Trump is right to want to ‘keep America safe’ from such influences, even if he muddled his figures. Yet his approach is hardly achieving that. ‘Do you notice we are not having a gun debate right now? That’s because they used knives and a truck!’ he tweeted after the London Bridge attack. True enough. But whereas in the past five years 11 jihadists have launched fatal attacks in America, killing 82 of their 86 victims with bullets, during the same period nine jihadists in Britain, without access to guns, killed only 37, according to the Global Terrorism Database at the University of Maryland. America’s overall homicide rate is five times Britain’s. British crime statistics may well contain lessons for America, but not the ones Mr Trump claims.”

Economist – Apple should shrink its finance arm before it goes bananas – Schumpeter 10/28

  • “The world’s biggest firm has a financial arm half the size of Goldman Sachs.”

Markets / Economy

Economist – The future of online retailing is bright 10/26

  • “E-commerce will not obliterate all retail trade. Stores that are distinctive in one way or another—because they offer excellent service, for instance, or unique products—will remain. But consider the change already wrought in America, where e-commerce accounts for about one-tenth of retail spending. If that share were to rise to one-fifth, let alone one-third, the effects would be vast. In the longer run the impact of e-commerce will not be limited to the conventional retail industry it is increasingly replacing. It will also change how consumers spend their days, transform the landscape, disrupt workers’ lives and reshape governments’ view of corporate power.”
  • “For consumers, e-commerce has ushered in a golden age. They can choose from more products of better quality than ever and spend far less time and effort to get what they want. Once-complacent manufacturers must compete fiercely for their business. No wonder Amazon is the most popular company in America, according to a recent Harris poll.”
  • “As demand for physical shops ebbs, that for warehouses will surge. Citi estimates that 2.3bn square feet (214m square meters) of new warehousing—equivalent to about 20,000 football pitches—will be needed worldwide over the next 20 years.”
  • “The future for ailing stores is less certain. Many shops in big cities will remain, less as sales hubs than as showrooms. Rents for them will probably come down. Retail rents are already falling in America and in much of Asia, according to CBRE, a property agency.”
  • “An even hotter topic is the effect of all this on employment. So far the decline in traditional retail jobs in America seems to have been offset by a rise in warehousing work. Between 2007 and 2017 the number of retail jobs shrank by 140,000 while those in e-commerce and warehousing rose by about 400,000, according to Michael Mandel of the Progressive Policy Institute, a think-tank. But the net gain in jobs may be temporary. Stores are only now starting to close, and those that remain are just testing automation. More robots will be used in warehouses, too, as their costs come down and their picking skills improve.”
  • “Barring any dramatic intervention, however, the biggest e-commerce sites look set to get bigger. Amazon and Alibaba typify a new breed of conglomerate that benefits from network effects. The more shoppers firms can muster, the more sellers will flock to them, attracting yet more shoppers. These effects are turbocharged by the breadth of their businesses and the vast amount of data they generate. This does not mean they will dominate every sector or market, but their mere presence in an industry will reshape it. The question is not if they will keep upending retailing, manufacturing and logistics, but which industry and part of society they will change next.”

Real Estate

WSJ – World Record $5 Billion Skyscraper Sale a Tall Order – Jacky Wong 11/2

  • “Hong Kong’s richest person Li Ka-shing is selling the city’s center—literally.”
  • “The billionaire’s property firm CK Asset has agreed to sell its stake in The Center, a 73-storey skyscraper in Hong Kong’s central business district, for $5.15 billion, making it the world’s most expensive commercial building ever. The sale continues Mr. Li’s retreat from China and Hong Kong in recent years as he invests in sectors like utilities in developed markets such as Australia and the U.K. Last year, he sold a commercial property project in Shanghai for about $3 billion.”
  • “The major shareholder entity buying The Center is an oil company in which the Communist Party of China has an effective 15% stake.”

Finance

NYT – S.E.C. Warns Celebrities Endorsing Virtual Money – Nathaniel Popper 11/1

  • “The S.E.C. said in a statement released on Wednesday afternoon that celebrities who promoted coin offerings could be violating multiple laws, including antifraud regulations and rules that govern investment brokers.”

November 2, 2017

If you were only to read one thing…

WSJ – Backlog in EB-5 Immigration Program Creates Cash Hoard for Property Developers – Peter Grant 10/24

  • “A backlog in the controversial EB-5 immigration program, which enables foreigners who invest in the U.S. to get green cards, is making billions of dollars of new money available for investments in real estate and other businesses.”
  • “The backlog is primarily in China, where the EB-5 program has become so popular that applicants can face delays of more than 10 years from the time they make their investment of at least $500,000 to the time they get their visa.”
  • “The U.S. government limits the number of EB-5 visas to 10,000 a year, and per-country cutoffs can get imposed on countries like China where the application rate is high.”
  • “This had created a problem for applicants: 10 years is such a long time that some U.S. developers want to repay the investors’ money before visas are issued. But doing do would disqualify the EB-5 application.”
  • “The solution—which was spelled out by the U.S. Citizenship and Immigration Services in a June policy memo—is a process known as redeployment. Essentially, the government said, EB-5 applications remain in good standing if the repaid money is reinvested in an active business and remains ‘at-risk’.”
  • “More than $16.6 billion is expected to become available for redeployment between now and 2020, according to NES Financial, of San Jose, Calif., one of the leading providers of EB-5 servicing and administration.”
  • “Investment companies have begun to position themselves to take advantage of billions of dollars now available for reinvestment. For example, in July, a venture of Greystone & Co., NES and Capital United LLC created a way for EB-5 money to be redeployed into a fund of real-estate bridge loans originated by Greystone.”
  • “The EB-5 program was created in 1990 and has been popular among U.S. real-estate developers, who have flocked to it as a source of low-cost financing. The program requires investments of at least $500,000 to create at least 10 jobs, making it appealing to city and state economic development agencies as well.”
  • “Now the redeployment of funds has raised new concerns about the EB-5 program, which is facing reauthorization by Congress. For example, the June policy manual ‘appears to allow’ developers to invest redeployed funds in projects that don’t get as much vetting as the original EB-5 project, according to Gary Friedland, a scholar-in-residence at New York University who has written about the program.”
  • “More than 4,400 petitions for EB-5 status were filed in the third quarter of fiscal year 2017, which ended in June, according to Invest In the USA, a trade association. The number of pending petitions was up 11% from the second quarter to over 24,600, the group said.”
  • “There is no job-creation requirement on the redeployed funds. But the necessary jobs have been created after the original EB-5 investments are made, Ms. Berman (Allison Berman, head of Greystone’s EB-5 business) pointed out. ‘Each investor already has created at least those 10 jobs,’ she said.”
  • “Ms. Berman says the fund targets a 4% return after fees. Redeployment is good for the U.S. economy because it is keeping the EB-5 money ‘in commerce for longer than initially anticipated.'”

Perspective

WSJ – Chinese Banks’ Capital Cushion Isn’t So Comfy – Anjani Trivedi 10/26

  • “Prudent as Chinese banks’ capital-raising binge may seem at first blush, investors should keep an eye on what’s driving their buffer-building.”

Worthy Insights / Opinion Pieces / Advice

NYT – Expelling Immigrant Workers May Also Send Away the Work They Do – Eduardo Porter 10/24

  • “This is how the growers will respond to President Trump’s threatened crackdown on immigration: They will lobby, asking Congress to provide some legal option to hang on to their foreign work force. They will switch to crops like tree nuts, which are less labor-intensive to produce than perishable fruits and vegetables. They will look for technology to mechanize the harvest of strawberries and other crops. And they will rent land in Mexico.”
  • “There is one thing they won’t do. Even if the Trump administration were to deploy the 10,000 immigration agents it plans to hire across the nation’s fields to detain and deport farmhands working illegally, farmers are very unlikely to raise wages and improve working conditions to attract American workers instead.”
  • “’Foreign workers will always be harvesting our crops,’ Tom Nassif, who heads the Western Growers Association, told me. The only question for policymakers in Washington is whether ‘they want them to be harvesting in our economy or in another country.’ If they choose the latter, he warned, they might consider that each farmworker sustains two to three jobs outside the fields.”
  • “Most of what we know about the effect of immigration on American-born workers is based on studies of what happens when immigrants arrive. Almost 30 years ago, the economist David Card found that the Mariel boatlift of 1980, in which more than 100,000 Cubans fleeing the island landed in Florida, did little damage to either the employment or the wages of the Americans they competed with.”
  • “A flurry of research since then has tried to find fault with that counterintuitive conclusion. Yet despite the claims from the Trump administration that immigrants have decimated the working class, Mr. Card’s analysis has emerged pretty much unscathed: With few exceptions, economists agree that even less-educated natives suffer little when immigrants arrive.”
  • “What if the shock goes the other way, though? We know less about what happens when immigrant workers are kicked out. But a series of studies over the past year are also coming to something of a consensus: Expelling immigrants does not open opportunities for workers born in the United States, either. Rather, the shock leaves them worse off than when the immigrants were here.”

NYT – America Is Not a ‘Center-Right Nation’ – Eric Levitz 11/1

The Republic – Mafia in our midst: A mob soldier turned Phoenix businessman – Robert Anglen 10/31

  • A very thorough and salacious report on Phoenix businessman Frank Capri (formerly a mobster by the name of Frank Gioia Jr.).
  • “Frank Capri, who persuaded developers to give him millions to build Toby Keith restaurants, had a violent history…”

WSJ – The Morningstar Mirage – Kirsten Grind, Tom McGinty, and Sarah Krouse 10/25

WSJ – WeWork’s Lord & Taylor Deal: Savvy Move or Top of the Market? – Dan Gallagher and Justin Lahart 10/24

Markets / Economy

WSJ – Daily Shot: Bitcoin 10/31

FT – Subsidies help China sell the most electric cars – Charles Clover 10/23

  • “Few countries have done more than China to push towards an electric future for the car industry. Beijing announced last month that it was looking at when to implement a ban on petrol and diesel cars, following announcements by France and Britain, which said they would ban traditional fuel vehicles by 2040, and Germany’s parliament, which has called for a ban by 2030.”
  • “Beijing also announced wide-ranging regulations forcing carmakers to start to meet steadily increasing production quotas for battery-powered cars, beginning in 2019.”
  • “Reactions to the announcement illustrate how China has managed to grow so quickly to become such a significant market for electric vehicles. China uniquely possesses the means to implement its will — it is the world’s largest car market, meaning it has unprecedented leverage over the global car industry, and also has a massive central planning mechanism.”
  • “Electric vehicles (EVs), both fully electric and hybrids, are part of a new industrial policy known as Made in China 2025, by which year Beijing wants to have national champions in 10 high-tech industries, including robotics, semiconductors and electric vehicles.”
  • “To achieve this, local and central governments have allotted subsidies that last year were worth up to Rmb100,000 ($15,000) per vehicle, according to Yale Zhang of Auto Foresight, a Shanghai consultancy specializing in the car industry.”
  • “Fitch, the rating agency, has found that average electric vehicle subsidies in China are the second most generous in the world after Norway.”
  • “China has also introduced a preferential vehicle licensing system in several cities. License plates are given out either by auction, lottery or after payment of a high fee in an effort to halt car congestion, but EV buyers get license plates free and without a wait in at least six Chinese cities. These centers account for 70% of domestic EV purchases, Fitch says.”
  • “China’s national grid is investing in EV charging stations. It expects to put Rmb25bn ($3.75bn) into charging stations by 2020; there are already 171,000 nationwide according to Xinhua, China’s official news service. This compares with 45,000 charging outlets and 16,000 electric stations in the US, according to official data.”
  • “In response to Beijing’s measures, the industry has boomed: sales of electric vehicles and hybrid vehicles were up 53% in 2016 to 507,000, according to the China Association of Automobile Manufacturers, which estimated that the number accounted for 45% of all such vehicles sold worldwide in that year.”

Real Estate

WSJ – Daily Shot: Homebuilder Index Relative Performance to S&P 500 10/31

WSJ – Chinese Property Shopping Spree Fades as Beijing Hits the Brakes – Dominique Fong and Esther Fung 10/31

  • “Since late 2016, policy makers in Beijing have been tightening restrictions on overseas investments and scrutinizing some of the country’s most ambitious deal makers, voicing concerns that deals in certain sectors were disguises for capital flight into havens.”
  • “Outbound capital from China into foreign properties and development sites reached a record $36.8 billion in 2016, according to data firm Real Capital Analytics. Volume for the first three quarters of this year was $19.7 billion. In the U.S. real-estate market, capital from China slowed to $5.1 billion in the same nine-month period, down from a total of $14.8 billion in 2016, said Real Capital. These are deals that are $10 million and greater.”
  • “Real-estate companies based in Hong Kong also appear to be less affected by the capital controls. Companies based in Hong Kong this year bought two high-profile London buildings, nicknamed the ‘Cheesegrater’ and ‘Walkie Talkie’.”
  • “But increasingly, firms are toeing to the party line. ‘Investors with capital already outside of China will continue to show strong interests allocating capital to U.S. real estate…though those in this category, even ostensibly private companies, are progressively less free to ignore what goes on in China,’ said Andrew Levy, senior counsel at law firm DLA Piper.”

WSJ – Driverless Cars Could Slam Brakes on Self-Storage Sector – Peter Grant 10/24

  • “The approaching transportation revolution is going to have major repercussions in the commercial real-estate sector as driverless vehicles and ride-hailing services such as Uber and Lyft gain more widespread adoption.”
  • “The property type expected to be hurt the most: Self-storage. Because people will own fewer cars, they will have more storage spaces in their garages, so they won’t need to rent it.”
  • “That is one of the conclusions of a new report on the future of transportation and real estate by the Urban Land Institute and real-estate investment research firm Green Street Advisors. The report says ride-hailing services already are having a big effect on consumer behavior and predicts that ‘mass adoption’ of driverless vehicles will begin around 2030 and be completed about 15 years later.“
  • “…transportation revolution could be a mixed bag for industrial space. Demand from e-commerce should explode, the report says, but driverless trucks will improve efficiency.”
  • “’Goods should spend less time sitting idly in warehouses, likely resulting in a drag on industrial real-estate demand,’ the report says.”
  • “The report points out that investors need to be savvy about the impact of transportation trends because valuing a property today depends heavily on the long-range future. Because issues that go beyond seven years ‘are usually ignored, mispricing can result,’ the report states.”
  • “The opportunity is significant for investors who can figure out these trends now. ‘But, uncertainty is huge, so humility is in order,’ the report states.”

WSJ – Big Law Firms Look to Shrink Their Office Space Use – Esther Fung 10/24

  • “Of the 14 million square feet of office space leased to law firms between the first quarter of 2016 and the second quarter of 2017, 40% was the result of a contraction by the tenant, according to a CBRE Group study of 26 markets.”
  • “On average, the law firms reduced their leased space by 27%.”
  • However, “top law firms that lease more than 50,000 square feet of office space are more likely the ones that are reducing their physical office space, rather than their smaller peers.”

WSJ – More People Think Renting Is a Better Deal Than Buying – Laura Kusisto 10/24

  • “A growing percentage of renters believe it is cheaper to rent than to buy a home, which helps explain why the homeownership rate remains persistently low nearly a decade after the housing crash.”
  • “In the Freddie Mac survey, the view that renting is more affordable increased significantly across all age groups. Some 76% of millennials said renting is an affordable option, up more than 10 percentage points from a year ago. Roughly 82% of baby boomers said they view renting as a more affordable option, up 11 percentage points from a year ago. And the share of Generation Xers who see renting as more affordable jumped to 75% from 56%.”
  • Never forget that these surveys or comparisons are a snap shot in time. At times renting is more affordable than buying (it should always be more affordable than buying); however, once you buy (of course coming up with the down payment is no easy accomplishment) you generally have fixed your cost of occupancy (increases in property taxes and maintenance costs will get you in either case). Further, the forced savings element of a mortgage is hands down one of the best ways to build wealth. I recognize that it helps to have a relatively stable life to do this. However, if you’re renting, that cost will NEVER go away, and don’t forget the power of compounding costs – which will eat your savings eventually once you’re no longer making money, or stop receiving raises.
  • Rent if you have to or while your life is in transition, but homeownership is the goal (unless, if governments make property taxes prohibitively expensive and/or push to a model where the state owns all housing).

WSJ – Commercial Property Transactions Dry Up as Sellers Hold Out for Better Prices – Esther Fung 10/24

  • “Big U.S. real-estate companies have been selling assets at a slower pace this year, as the gap widens between their views on what their properties are worth and buyers’ willingness to pay high prices.”
  • “After an eight-year bull run for commercial real estate, some investors have been anticipating a correction. But that hasn’t happened yet, and there is little consensus on how much longer the bull market has to run.”
  • “Buyers, facing tighter lending conditions and slower income growth, are expecting lower prices and bidding accordingly, but sellers, including publicly traded property owners, are holding out for better deals.”
  • “Listed real-estate investment trusts have sold $46.7 billion in assets as of Oct. 23 this year compared with $71 billion in assets sold in all of 2016, according to data from Real Capital Analytics. Acquisitions, on the other hand, have been at a roughly similar pace at around $44.6 billion as of Oct. 23 this year compared with $47.9 billion in 2016. There have been fewer major transactions especially in the office and retail real-estate sector.”
  • “Unlike previous cycles, property owners aren’t overly leveraged and are still able to access the debt markets rather than be compelled to sell at unattractive prices.”
  • “For REITs, there is the added burden of making sure any sales proceeds can be deployed for other uses quickly, given their inability to hoard cash. These landlords are hesitant to sell in part because of the lack of attractive assets to buy as well as a general reluctance to do share buybacks.”
  • It should be noted that one major buyer of assets from listed REITs has been having issues in its fund raising mechanisms. That is the public non-traded REIT.

Energy

FT – US oil producers: Shale safe – Lex 10/23

  • “From Silicon Valley to the shale patch, the fundamental laws of corporate finance have been suspended for years. Such a calculus only works, however, if investors are willing to shoulder heavy losses on uneconomic investment in the hopes that pricing power ultimately ensues. Reality may have begun to weigh upon US oil producers. A renewed focus on spending within cash flow is taking hold in 2017.”
  • “Shareholders have turned off the funding spigot, with US E&P companies raising only $6bn in equity this year compared with more than $30bn in the same period last year. The perverse practice of tying oil executive compensation to production growth, not profits or cash flow, has also finally received the attention it deserves.” 
  • “The acreage obsession in the energy industry was always predicated on the idea that somebody else’s company would succumb before one’s own. But last man standing no longer beats cash is king as a mantra.”

FT – US shale investors tire of ‘growth at any cost’ model – Ed Crooks 10/22

  • “In a recent presentation at the New York Stock Exchange, Doug Suttles, chief executive of Encana, spelt out the new reality for North American oil and gas producers. The industry had gone, he said, from ‘resource capture’ to ‘value maximization’.”
  • “This is a profound change. Since the shale oil revolution began in the late 2000s, management teams have mostly focused on growth at any cost, and investors have mostly been prepared to back them.”
  • “This year, however, investor sentiment has shifted. Shareholders are less dazzled by the excitement of the shale boom, and more interested in orthodox measures of success including returns on capital and cash generation.”
  • “The whole shale industry is being pushed in the same direction. If companies fail to improve shareholder return, says Stephen Trauber, global head of energy at Citi, ‘investors will start to question what management is doing’.”
  • “For the past eight years, the US exploration and production industry has outspent its cash flows in drilling costs, requiring a constant inflow of debt and equity financing to keep going. But the industry has given shareholders very little in return.”
  • “Given those numbers, it is unsurprising that investor interest appears to have waned. US exploration and production companies raised $34.3bn from share sales in 2016, making it a record year, but just $5.7bn in the first nine months of 2017, according to Dealogic.”
  • “The pressure from investors for more discipline — a word used 17 times by Encana in its presentation — already seems to be having an effect. The number of active rigs in the US drilling the horizontal wells used for shale oil production has been dropping since the beginning of August.”
  • “Jamaal Dardar, an analyst at Tudor Pickering Holt, says just six months ago he would have expected US oil and gas producers to go on outspending their cash flows into next year at least. He now expects that in 2018 the larger exploration and production companies will in aggregate earn positive free cash flow, after capital spending but before dividend payments.”
  • “’We all like growth, but it must be profitable growth,’ Mr Holt says. ‘They might be able to grow at 5 or 10% per year, but not at 20%.’”
  • “If companies bow to that pressure from investors, it could work out very neatly. Slower oil production growth in the US would help push crude prices higher, making it possible for the industry to deliver the returns that shareholders want.”
  • “But Citi’s Mr Trauber warns the history of the oil industry shows it rarely delivers such tidy outcomes.”
  • “’We have been here before,’ he says. ‘At times over the past 30 years, investors have demanded discipline from the industry. But then as soon as the oil price picks up again, they have forgotten all about it and the industry has rushed back to growth again.’”

Finance

WSJ – Wealthier Depositors Pressure Banks to Pay Up – Telis Demos and Christina Rexrode 10/24

  • “As the Fed has raised rates, banks have been reluctant to do the same on their deposits. But for wealth-management customers, that’s starting to change.”

FT – DRW leads high frequency trading charge into cryptocurrencies – Gregory Meyer and Joe Rennison 10/22

  • Having a hard time finding enough volatility to trade in the markets, some are now trading Bitcoin…

China

NYT – Xi Jinping Vows No Poverty in China by 2020. That Could Be Hard. – Javier C. Hernandez 10/31

  • For China’s – and the world’s – sake, I hope that they succeed.

NYT – China’s Entrepreneurs Squirm Under Xi Jinping’s Tightening Grip – Sui-Lee Wee 10/23

India

FT – Reality dawns on India’s solar ambitions – Kiran Stacey 10/31

  • “The country has one of the world’s biggest solar sectors, but now faces the risk of a bubble.”

NYT – The Uninhabitable Village – Geeta Anand and Vikram Singh 10/26

  • “Hotter temperatures are forcing families in southern India to decide: Try to survive here, or leave?”
  • A very unique way to report on a story. A video slide show with text.

Other Interesting Links

FT – Spot the difference: why lab-grown diamonds pose a threat to big miners – Henry Sanderson 10/30

November 1, 2017

Perspective

Economist – The political economy of witchcraft – Daily Chart 10/31

  • “How early modern witch-hunters resemble contemporary politicians.”

Tax Foundation – 2018 State Business Tax Climate Index 10/31

Axios – Cost-cutting could stunt the health care jobs expansion – Christopher Matthews 10/25

NYT – A Peek at Future Jobs Shows Growing Economic Divides – Ben Casselman 10/24

FT – US conservative media deflects from Mueller probe – Shannon Bond 10/31

Worthy Insights / Opinion Pieces / Advice

FT – Iraq and the risks to the oil market – Nick Butler 10/30

LinkedIn – California’s Housing Bleeding Out While We Apply Band-Aids – John McNellis 10/30

  • A very insightful read on the affordable housing crisis in California (or substitute any high cost metro/area), the proposed efforts to combat it, an insiders understanding of why these efforts will fall short, and some real solutions.

LinkedIn – Our Biggest Economic, Social, and Political Issue The Two Economies: The Top 40% and the Bottom 60% – Ray Dalio 10/23

Markets / Economy

NYT – Thanks to Wall St., There May Be Too Many Restaurants – Rachel Abrams and Robert Gebeloff 10/31

  • “After a prolonged stretch of explosive growth, fueled by interest from Wall Street, experts say there are now too many fast-food, casual and other chain restaurants.”
  • “Since the early 2000s, banks, private equity firms and other financial institutions have poured billions into the restaurant industry as they sought out more tangible enterprises than the dot-com start-ups that were going belly-up. There are now more than 620,000 eating and drinking places in the United States, according to the Bureau of Labor Statistics, and the number of restaurants is growing at about twice the rate of the population.”
  • “The glut of restaurants has increased the pressure on individual restaurant owners. Industry sales are up nationally, but growth has slowed to the lowest rate since 2010.”
  • “Customers continue to spend a large share of their food budget in restaurants, but they’re spreading the money across a larger number of establishments, so profits are split into smaller individual pieces. Yet the industry — particularly chain restaurants — continues to expand, a strategy that both masks the problem and makes it likely that more places will falter.”
  • “Sales at individual chain restaurants, compared with a year earlier, began dropping in early 2016, analysts reported. A majority of restaurants reported sales growth in just four of the last 22 monthly surveys from the National Restaurant Association. Before that, most restaurants had reported growth for 20 consecutive months, from March 2014 through October 2015, the survey found.”
  • “As Americans work longer hours and confront an ever-growing array of food options, they are spending a growing share of their food budget — about 44 cents per dollar — on restaurants, according to food economists at the United States Department of Agriculture Economic Research Service.”
  • “But while consumer demand contributed to the restaurant boom, it was changes on Wall Street that really fueled the explosion. Chains like Del Taco, Papa Murphy’s and others began attracting money from private equity firms, and banks like Wells Fargo and Bank of America saw lending opportunities in the restaurant industry.”
  • “…some franchisees say they’re being pressured to open too many stores as food companies push for new revenue streams. Buying an existing restaurant, for example, may mean agreeing to build 10 new ones.”
  • “’They want us to sign aggressive development agreements,’ said Shoukat Dhanani, the chief executive officer of the Dhanani Group, which owns hundreds of Burger King and Popeyes restaurants. ‘I didn’t see that even five years ago.’”
  • “The shuttering of restaurants could have a major impact on the labor market. Since 2010, restaurants have accounted for one out of every seven new jobs, and many restaurateurs complain that it has become increasingly difficult to hire and retain workers.”
  • “Those positions could be in jeopardy if sales continue to fall and force more restaurants to close. Over the summer, the parent company of Applebee’s announced it would close more than 100 locations. In 2016 Subway, the nation’s largest fast-food chain by location count, closed more locations than it opened, the first time in its history that had happened.“

Real Estate

NYT – Investors Push Into a Resurging Market: House Flipping – Paul Sullivan 10/20

WSJ – When Sellers Compete Against Their Building’s Developers – Katherine Clarke 10/25

  • “It is a seller’s nightmare: Putting a luxury condo on the market, only to find that upstairs, another unit that has never been lived in is on the market for the same price or less. And to make matters worse, the seller upstairs has the resources to keep cutting his price if his place doesn’t sell.”
  • “This is the plight that some owners of luxury condos built in the past few years are encountering, as they find themselves in direct competition with their building’s developer when it comes time to sell.”
  • “It isn’t supposed to work this way. Typically, developers don’t allow buyers to resell for the first year after a building is completed, to prevent owners from quickly flipping their homes for a profit. In a hot market, a year gives the developer plenty of time to sell most of a building’s units.”
  • “But now sales at the top end of the luxury market are starting to slow. In total, the number of sales for Manhattan apartments priced at $10 million or more fell by 25% in the third quarter, compared with the same period last year, according to a Wall Street Journal analysis of public property records.”
  • “’There are lots of buyers out there who are finding that their assets are being devalued by their own sponsor,’ said Frances Katzen of Douglas Elliman, an agent preparing to put a resale on the market at 30 Park Place. ‘I think that there are plenty of people who are very angry to see that.’”
  • “Take One57, the ultraluxury tower on New York’s West 57th Street which quickly became known for its high-end amenities, top prices and wealthy buyers when it launched sales in 2011. Despite the buzz, nearly a dozen available listings are still posted online after six years of sales efforts by Extell Development, the building’s developer. The result: The developer is cutting its prices.”
  • “For example, a four-bedroom, 43rd floor unit is currently on the market for $17.5 million after listing for $19 million in 2015, and a three-bedroom, 42nd floor unit is asking $16.9 million, down from $18.75 million in 2015, according to listings website StreetEasy.”
  • “Owners in the building who wish to resell are doing the same. Late last year, a seller at One57 swallowed a more than $8 million loss when the unit sold for $23.5 million, far less the $31.7 million it sold for two years prior.”

Energy

WSJ – Trump Plan for Coal, Nuclear Power Draws Fire From Environmental, Oil Groups – Timothy Puko 10/22

  • “A Trump administration proposal aimed at shoring up coal-fired and nuclear power plants across the nation has generated opposition from an array of energy and consumer interests, including some who are often at odds on energy policy.”
  • “Oil and gas companies, wind and solar power producers, some public utilities, electricity consumers and environmentalists—rarely natural allies—are all publicly opposing the Energy Department’s proposal. The plan would effectively guarantee profits for some nuclear and coal-fired power plants, prompting critics that also include former federal regulators to call it a bailout for struggling plants that undermines competitive markets.”

Finance

Bloomberg – There’s Now a Cryptocurrency Fund-of-Funds – Camila Russo 10/24

Tech

FT – Big Tech and Amazon: too powerful to break up? – David Lynch 10/29

China

WSJ – Foreign Companies in China Get a New Partner: The Communist Party – Chun Han Wong and Eva Dou 10/29

CNBC – China central bank chief raises new worry in China: Mortgage-driven household debt – Evelyn Chang 10/23

  • “China’s central bank chief just warned about a potential bubble in China: Rising household debt.”
  • “‘Regarding household debt levels, China doesn’t rank that high on a global scale, but the pace of growth has picked up in the last few years,’ People’s Bank of China governor Zhou Xiaochuan said Thursday. He didn’t expect any action should be taken immediately but said the debt levels should be monitored for quality and a steady pace of growth.”
  • “The bigger worry about China has been high levels of corporate and local government debt. The Chinese government has spoken about the need to limit that growth, and most analysts expect authorities will gradually rein it in. But this year, household debt has arisen as another area of concern about financial leverage in China.”
  • “‘China’s household debt has been rising at an ‘alarming’ pace over the past two years,’ Citi analyst Li-Gang Liu said in an Oct. 10 note. The report pointed out that outstanding household debt in China has doubled from 29.6% of gross domestic product at 16 trillion yuan ($2.41 trillion) in 2012 to 44.3% of GDP at 33 trillion yuan last year.”
  • “In order to prevent speculation from sending property prices even higher, local Chinese governments have implemented policies to restrict purchases such as limiting the number of apartment units someone can own and how soon they can resell them.”
  • “The IMF pointed out in its Global Financial Stability Report earlier this month that Chinese banking sector assets are now 310% of GDP, up from 240% at the end of 2012 and nearly three times the emerging market average.”
  • “‘Debt in China is our No. 1 risk in the whole world,’ said Paul Christopher, head global market strategist at Wells Fargo Investment Institute. But rather than worrying about financial disruption from China, ‘I would worry more about the prospect of slowing China demand.'”
  • “In a report last Monday about how increasingly wealthy Chinese will boost demand for high-end products, Sanford C. Bernstein analysts said the property market has been the ‘single largest driver’ of the increase in Chinese wealth. They estimate the property market has increased in value by about $12 trillion since 2010, while overall private wealth among Chinese households has increased from $10 trillion in 2010 to $34 trillion.“
  • “‘As one example, since 2010 the owner of an average 90-square-meter apartment in Shenzhen has experienced a capital gain of almost US$500,000 (nearly a quadrupling in value),’ senior equity research analyst Euan McLeish and a team of analysts wrote. ‘That kind of appreciation in personal assets changes behavior.'”

Europe

NYT – As European Central Bank Eases Emergency Measures, Risks May Lurk – Jack Ewing 10/25

  • “Signaling fresh confidence in the region, the European Central Bank began on Thursday to gingerly dismantle an arsenal of emergency measures that for a decade helped to keep the currency and economy from disintegrating in the face of financial turmoil.”
  • “The decision marks a new phase of the recovery, after four years of economic expansion and falling unemployment. Mario Draghi, the central bank’s president, heralded what he called ‘the unabated growth momentum’ in the 19-country euro area.”
  • “The European Central Bank, which held the benchmark interest rate steady at a historic low of zero percent, provided a timetable on Thursday for rolling back purchases of government and corporate debt, a program known as quantitative easing.”
  • “It had been buying 60 billion euros, or about $70 billion, of such bonds every month, and will scale that back to €30 billion a month for nine months, starting in January. The bank will also reinvest the proceeds when bonds mature, so that in practice the monthly purchases will be well above €30 billion. Over all, the measures were in line with expectations.”
  • “To avoid provoking renewed turmoil, the European Central Bank is moving slowly.”
  • “It stressed on Thursday that it ‘stands ready’ to increase the asset purchases in response to worsening financial conditions or if inflation failed to rise.”
  • “Historically low interest rates will remain in place for the foreseeable future. The central bank has said it will not begin raising rates until it has stopped buying bonds, and only if the eurozone inflation rate is on track to hit the official target of 2%”

Middle East

FT – Post-caliphate Isis prepares for its reincarnation – David Gardner 10/20