January 9, 2018

Worthy Insights / Opinion Pieces / Advice

GMO – Bracing Yourself for a Possible Near-Term Melt-Up – Jeremy Grantham 1/3

LinkedIn: Why Bitcoin is the largest Ponzi scheme in human history – Vivek Wadhwa 12/29

Vanity Fair: “Oh My God, This is so F—ed Up”: Inside Silicon Valley’s Secretive, Orgiastic Dark Side – Emily Chang – Feb. 2018

Markets / Economy

Bloomberg – Electric Car Drivers Are Too Smart to Own Electric Cars – Kyle Stock 1/3

  • “U.S. drivers now lease almost 80% of battery electric vehicles and 55% of plug-in hybrids, according to Bloomberg New Energy Finance. The lease rate for the country’s entire fleet hovers around 30%. (There’s one blank spot in the data: Tesla does not divulge how many of its vehicles are leased, and since it sells its cars directly rather than through dealerships, the company doesn’t have to.)”
  • “The lopsided consumer preference for leases is fueled by the meager demand for battery-powered vehicles on the used market. Partly this is a consequence of public policy meant to spur electric vehicle adoptions: buyers of pre-owned cars can’t grab thousands of dollars in federal and state incentives.”
  • “The high lease rate is also fueled by the bet Jablansky (Jeffrey Jablansky – car journalist) and others like him are making that upcoming models will far exceed today’s in value and capabilities. ‘When there’s new technology coming out, and it’s coming out so rapidly, and you’re improving on it so constantly, typically people only want to lease it,’ Steve Center, a vice president of American Honda Motor Co., said in an interview at the 2017 New York Auto Show. The hydrogen fuel cell version of the Honda Clarity isn’t available for purchase; it can only be leased. ‘Think of your cell phone,’ Center explained.”
  • “Perhaps electric vehicles will truly arrive when they are no longer compared to smartphones, which become obsolete after three years.”
  • “The bet on fast-paced improvements makes sense. In the past five years, battery prices have fallen by an annual average of 20%, according to BNEF, as factories scale up and engineers perfect the packaging of cells. ‘If you look at what can happen across the lifetime of a lease, you’re really talking about doubling the range of these vehicles,’ said Edmunds analyst Jeremy Acevedo.”
  • “Not surprisingly, a dated plug-in car is a pariah. Electric compact cars that were sold in 2014 are now worth only 23% of their original sticker price, compared with 41% for comparable combustion vehicles, according to Black Book, an auto analytics firm.”
  • “Part of the problem is that nobody—including auto engineers—really knows how well the first wave of these plug-in cars will age.”
  • “There are strong arguments to be made for a secondhand electric car. For one, a used plug-in should be far more reliable than a gas-fueled car because plug-ins have fewer moving parts and aren’t powered by small explosions. Consumer prices for electricity are far more stable than for gasoline, and even older models can have their efficiency enhanced through remote software updates.”
  • “Car companies aren’t overly worried about cultivating a secondary market for electric cars, particularly when the market for new models remains so lackluster. Sales of new models are all that matter when it comes to hitting fleetwide efficiency mandates. That’s one of the reasons most automakers are less than forthcoming about the cost of replacing a battery.”
  • “If there is a tipping point in which the electric car market stops behaving like the market for flat-screen televisions, it likely won’t be for two more years. The first Chevy Bolts will come off lease in 2020—roughly 12,000 of them—and analysts expect those cars still to be capable of going about 200 miles on a charge. The market will also start being seeded by a rash of new models: The Tesla Model 3 will be on the road in larger numbers by then, as will the Volkswagen e-Golf and Hyundai Ioniq.”

Business Insider – The Chevy Bolt is crushing the Tesla Model 3 – Matthew DeBord 1/3

Real Estate

FT – US retail’s turbulent relationship with private equity – Eric Platt and Anna Nicolaou 12/29

  • “More than half of the largest leveraged retail buyouts completed since 2007 have either defaulted, gone bankrupt or are in distress, according to a Financial Times analysis.”
  • “At least 50 US retailers — including Toys R Us, children’s retailer Gymboree, shoe store Payless and jean maker True Religion — have filed for bankruptcy this year, the most in six years, with analysts describing it as a ‘day of reckoning’, for companies that rolled over their debt refinancing for years. Observers warn that the distress is likely to accelerate in 2018 with nearly $6bn in high-yield retail debt set to mature.”
  • “Among the private equity owned retailers who have fallen into distress over the past decade are luxury goods brands including Barneys and Neiman Marcus, specialty apparel retailers such as J Crew and Claire’s, and the country’s largest pet suppliers, Petsmart and Petco.”
  • “The FT analysis focused on 31 deals with a price tag of more than $500m. In total, 19 leveraged buyouts worth a combined $43bn have run into trouble. While private equity groups have had success with a number of retailers since 2007, including Dollar General, Party City and BJ’s Wholesale Club, the majority struggled with the debt levels assumed in their buyouts. Investors in their bonds and loans have been dealt billions of dollars in losses.”
  • “’We are at historic highs [for distress], and we are not even in a recession,’ says Charlie O’Shea, retail analyst at Moody’s. ‘If you’re a CAA rated retailer [a deep-junk rating by Moody’s], you have no flexibility at all. If you’re highly leveraged with a product mix that goes head to head against Walmart and Amazon, and you are looking to refinance right now, what reception do you think you’re going to get? It’s tough out there’.”
  • “Mr O’Shea says he is looking to the first quarter of 2018 to see which ‘shoes are going to drop next’.”
  • “Neiman Marcus, the luxury department store that owns Bergdorf Goodman, is also on his radar. The Texas-based company was one of many buyout deals struck at the top-of-the-market. Neiman was taken private by TPG Capital and Warburg Pincus for $5.1bn in 2005, and eight years later was sold to private equity firm Ares Management and Canada Pension Plan Investment Board for $6bn.”
  • “But after weathering the recession better than other retailers, Neiman has succumbed to the explosive secular shifts that are wreaking havoc in bricks and mortar stores. Like-for-like sales have dropped for eight of the past nine quarters. This year Neiman scrapped both an IPO and a possible sale to rival Hudson’s Bay. With $4.9bn in debt, which S&P calls ‘unsustainable’, investors have grown nervous. Bonds sold by Neiman have tumbled below 60 cents on the dollar, from 80 cents a year ago.”


WSJ – Daily Shot: Investing.com – Bitcoin & Ripple 1/8


Bloomberg – How a Melting Arctic Changes Everything – Eric Roston 12/29

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