Month: January 2018

January 17, 2018

Perspective

A Wealth of Common Sense – Updating My Favorite Performance Chart For 2017 – Ben Carlson 1/14

Worthy Insights / Opinion Pieces / Advice

A Teachable Moment – The Power of Fee Shaming – Anthony Isola 1/15

Yahoo Finance – Business Insider: China is heading toward a debt crisis that will throw into question everything we think we know about its economy – Pedro Nicolaci da Costa 1/15

Markets / Economy

Bloomberg – The Stock Market Never Goes Down Anymore – Elena Popina 1/12

  • “Up eight times in the first nine days of 2018, the S&P 500 has broken away from a trend line, its 200-day moving average, with a velocity unseen since 2013, the best year for equities in a generation. The benchmark now sits more than 11% above the level, putting it in the 92nd percentile of momentum, data going back 20 years show.”
  • “Something has changed in equities. If 2017 was a slow but steady slog, 2018 has been off to the races, with shares rising at four times last year’s daily rate on the back of Donald Trump’s tax package and gathering signs of economic strength. Forty seven companies in the S&P 500 are already up at least 10% this year, compared with just two down as much.”
  • “Fear of missing out is rampant not just on Wall Street but worldwide. Globally, stock funds saw a $24 billion inflow in the five days through Thursday, the sixth largest weekly total ever.”
  • “The average of 23 strategists predictions is for the S&P 500 to reach 2,914 at year-end. If stocks were to maintain the same upward trajectory they’ve exhibited in the last nine days, it would take roughly two more weeks to reach the strategists’ target.”
  • “At 3.4 times its book value, the S&P 500 trades at the most expensive level since 2002, while its 14-day relative strength index reached a level unseen since 1996. The S&P 500 rose 1.6% to 2,786 this week, pushing the spread between the gauge and its 200-day moving average to 11.5%, the widest in five years.”
  • “To Walter Todd, Greenwood Capital chief investment officer, the optimism over earnings growth could continue to propel the stocks even higher.”
  • “’The fundamentals for the rally are strong, though the higher it goes, the higher the risk of a correction, and the higher the risk that the correction will be steep,’ Todd said by phone. ‘For now, fear of missing out is prompting investors who’ve stayed on the sidelines to jump in, as people say, ‘we missed the rally last year, we’re not going to miss on it again’’.”

NYT – BlackRock’s Message: Contribute to Society, or Risk Losing Our Support – Andrew Ross Sorkin 1/15

  • “Laurence D. Fink, founder and chief executive of the investment firm BlackRock, is going to inform business leaders that their companies need to do more than make profits — they need to contribute to society as well if they want to receive the support of BlackRock.”
  • “Mr. Fink has the clout to make this kind of demand: His firm manages more than $6 trillion in investments through 401(k) plans, exchange-traded funds and mutual funds, making it the largest investor in the world, and he has an outsize influence on whether directors are voted on and off boards.”

Real Estate

WSJ – Daily Shot: Vanguard REIT ETF 1/12

  • “REITs broke out to the downside on higher bond yields.”

Energy

FT – Gas and oil producers among hardest hit by US tax reforms – Ed Crooks 1/15

  • “US oil and gas producers are among companies hit hardest by new restrictions on tax relief for interest payments, an analysis of the impact of the reforms has shown.”
  • “The sweeping overhaul of the US tax system signed into law by President Donald Trump just before Christmas cut the main rate for corporations sharply, but will still mean higher bills for some businesses because it sets limits on deductions for interest payments.”
  • “The new law will put pressure on heavily indebted companies to reduce their borrowings, and could push over-burdened companies into steeper decline if their earnings fall.”
  • “Companies in industries including oil and gas, coal mining, casinos and trucking are among those likely to be most affected, according to Greensill Capital, a trade finance firm.”

WSJ – Daily Shot: Brent Crude 1/15

Finance

WSJ – Trouble Ahead for the Treasury Market – Justin Lahart 1/15

  • “Inflation, less central bank bond buying, an increase in supply – there are plenty of reasons for Treasury yields to go a lot higher this year.”

Cryptocurrency

Bloomberg Gadfly – Can Hedge Funds Handle a Bitcoin Bust? – Lionel Laurent 1/16

MarketWatch – Bitcoin tumbles to 6-week low as top cryptocurrencies all sell off – Victor Reklaitis 1/16

TechCrunch – Researchers find that one person likely drove Bitcoin from $150 to $1,000 – John Biggs 1/15

  • “Researchers Neil Gandal, JT Hamrick, Tyler Moore, and Tali Oberman have written a fascinating paper on Bitcoin price manipulation. Entitled ‘Price Manipulation in the Bitcoin Ecosystem’ and appearing in the recent issue of the Journal of Monetary Economics the paper describes to what degree the Bitcoin ecosystem is controlled by bad actors.”
  • “The manipulation happened primarily via two bots, Markus and Willy, that seemed to be performing valid trades but did not actually own the bitcoin they were using. During the Mt. Gox hack a number of these bots were able to create fake trades and make off with millions while manipulating the price of BTC.”
  • “’As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalizing bitcoin as a payment system (as Japan did in April 2017), it is important to understand how susceptible cryptocurrency markets are to manipulation. Our study provides a first examination,’ write the researchers.”

Environment / Science

South China Morning Post – China builds ‘world’s biggest air purifier’ (and it seems to be working) – Stephen Chen 1/16

  • “A 100-meter (328-foot) high air purification tower in Xian in Shaanxi province has helped reduce smog levels in the city, preliminary results suggest.”
  • “The head of the research, Cao Junji, said improvements in air quality had been observed over an area of 10 square kilometers (3.86 square miles) in the city over the past few months and the tower has managed to produce more than 10 million cubic meters (353 million cubic feet) of clean air a day since its launch. Cao added that on severely polluted days the tower was able to reduce smog close to moderate levels.”
  • “The experimental facility in Xian is a scaled-down version of a much bigger smog tower that Cao and his colleagues hope to build in other cities in China in the future.”
  • “A full-sized tower would reach 500 meters (1,640 feet) high with a diameter of 200 meters (656 feet), according to a patent application they filed in 2014.”
  • “The size of the greenhouses could cover nearly 30 square kilometers (11.6 square miles) and the plant would be powerful enough to purify the air for a small sized city.”

China

FT – China disrupts global companies’ web access as censorship bites – Yuan Yang and Lucy Hornby 1/16

  • “China is plugging the last holes in its ‘Great Firewall’ internet censorship apparatus, hampering global groups’ ability to operate in the country.”
  • “China aggressively censors the internet, cutting off locals’ access to Facebook, Google, YouTube and much more, to control what news and facts reach its population. A study by Freedom House, a US state-funded non-profit organization, in November ranked China last in the world for internet freedoms, for the third year in a row.”
  • “Multinationals have historically used software known as virtual private networks (VPNs) to bypass censorship and protect their communications from hacking and government surveillance. But in recent months, the companies said, they have had difficulty using their custom-built VPNs.”
  • “At the same time, regulators have been pushing multinationals to buy and use state-approved VPNs. The state-approved versions can cost tens of thousands of dollars a month and expose users’ communications to Beijing’s scrutiny.” 
  • “’This is a significant ramp-up from previous measures,’ said Carly Ramsey, associate director of consultancy Control Risks in Shanghai. ‘The Xi administration has prioritized control over all information flows within China, and in and out of its borders’.”
  • “’This is not just about tightening access, but also giving the government more visibility and control over cross-border connections. The government now has many new tools to make cyber space ‘secure and controllable’ on their terms,’ said Samm Sacks, senior fellow at the Center for Strategic and International Studies, a think-tank.”
  • “’In a society where the government wants to control the flow of communications and information, secure communications and encryption are certainly an ‘enemy’,’ said Sunday Yokubaitis, chief executive of VPN provider Golden Frog.”

FT – China reprimands companies calling Tibet and Taiwan independent – Emily Feng and Edward White 1/15

  • “Chinese regulators have publicly reprimanded a string of foreign corporations, including Qantas, Zara and Marriott, for labelling Tibet and Taiwan as independent countries, in online drop-down menus.” 
  • “’We welcome foreign corporations’ investment and operation in China,’ said Lu Kang, a spokesperson for the ministry of foreign affairs, at a regular press briefing last week. ‘Meanwhile, they should respect China’s sovereignty and territorial integrity, abide by China’s laws and respect Chinese people’s national feelings.’ Officials in Taipei said that China’s actions did not help Beijing earn the trust of Taiwanese people.”
  • “’Taiwan is undoubtedly a country,’ a spokesperson for President Tsai Ing-wen told the Financial Times. ‘Wiping out the name of Taiwan off the internet will not wipe out our existence in the world.’”

WSJ – China’s Hot Housing Market Begins to Cool – Dominique Fong 1/16

  • “While China has seen brief property downturns before, the high debt levels that fueled the boom makes this slump a particular risk for China’s economy and the policy makers trying to manage it.”
  • “Home prices fell 0.3% in November from a year earlier In Beijing and Shanghai, the most recent official data show. It was a small drop but a striking reversal from double-digit price surges that lasted more than a year.”
  • “Prices of advertised new Shanghai homes decreased 8% from October through mid-December, according to Brandon Emmerich at Granite Peak Advisory, a New York research firm that analyzed over 20,000 daily listings from Anjuke, a Chinese property-listing platform.”
  • “Though China’s Housing Ministry has said that property controls won’t be relaxed, the dangers of the downturn are lessened by the government’s ability to reboot demand by lifting restrictions—and Beijing has held off on introducing an anticipated property tax that could curb speculation but damp prices.”

 

January 16, 2018

Worthy Insights / Opinion Pieces / Advice

FT – Why are so many Americans crowdfunding their healthcare? – Barney Jopson 1/10

FT – A power shift in the Middle East – Nick Butler 1/14

  • “The opening of the Zohr gasfield is a big opportunity for Egypt’s energy ambitions.”

NYT – Is the Answer to Phone Addiction a Worse Phone? – Nellie Bowles 1/12

The New Yorker – The Psychology of Inequality – Elizabeth Kolbert 1/15

  • “Researchers find that much of the damage done by being poor comes from feeling poor.”

Markets / Economy

FT – Bond markets: Is the bull run over? – Robin Wigglesworth 1/12

  • “This year will probably mark the first since the financial crisis where major central banks start shrinking their market footprint, reawakening concerns over the $50tn global bond market where governments, companies and banks raise vital funding.”
  • “The end of the bond bull market has been called before. Last year, many analysts predicted a gloomy outlook. Instead, global fixed income enjoyed its best year in a decade, returning 7.4% to investors in the Bloomberg Barclays Global Aggregate bond index. Few believe bonds will replicate those gains in 2018. But many investors say it is far too early to read the market’s last rites, given some of the long-term global forces — such as the inflation-subduing forces of demographics and technology — that keep yields suppressed.”
  • “But investors now face a shift in central bank policy.”
  • “The Fed started cautiously shrinking its balance sheet last year. This month the ECB’s bond-buying fell by half to €30bn a month, and analysts expect the program to end this year. For the first time in a decade, central banks will probably be withdrawing money from markets by the end of 2018.”
  • “The primary cause for this week’s bond ructions — which saw the 10-year Treasury yield rise to a nine-month high of nearly 2.6% — was data that showed the BoJ’s purchases of long-dated bonds had slowed, with the sell-off then exacerbated by reports, later denied, that China was considering reducing its Treasury purchases.”
  • “While the Japanese central bank will still buy as many bonds as needed to keep the 10-year government yield pinned at zero, the deceleration was enough to cause the global debt market to shiver. ‘The market reaction shows just how sensitive it is to any whiff of the central banks being less aggressive,’ Mr Peters (Gregory Peters, a senior portfolio manager at PGIM Fixed Income) says.”
  • “At the same time, supply of freshly-issued government debt is expected to rise. In 2017, the central banks of the US, Europe, Japan and the UK bought about $170bn more government bonds than were issued, meaning the net supply actually contracted. But BNP Paribas estimates that markets will have to absorb $600bn of debt in 2018.”
  • “Another potential risk for investors is whether 2018 is the year when inflation finally emerges from its slumber.”
  • “Ageing demographics is pushing a global savings glut into safer fixed income and helping keep inflationary forces at bay, aided by technology that is proving to be a deflationary force across a range of global industries. Jim Reid, a Deutsche Bank strategist, says that bond market squalls might become more frequent as central banks tighten their monetary spigot, but argues that it would take accelerating inflation ‘to really turbo charge any bond sell-off’.”
  • “Derivatives contracts indicate that investors believe the 10-year Treasury yield will be below the 3% mark in two, five and even 10 years’ time. Equivalent German and Japanese bond futures show that investors think their benchmark bond yields will stay below 2% and 1% respectively over the same timeframes.”
  • “Highlighting the ravenous demand for safe fixed income returns, droves of buyers were attracted this week to the auctions of 10 and 30-year US government debt, helping quell the turbulence.”

Real Estate

AZ Republic – Home buyers with popular millennial names buying more Arizona homes, analysis says – Catherine Reagor 1/14

FT – Chill winds in Swedish housing market – Katie Martin 1/15

Finance

NYT – What’s $27 Billion to Wall Street? An Alarming Drop in Revenue – Emily Flitter and Kate Kelly 1/11

  • “For more than a decade, the world’s top investment banks practically minted money from the buying and selling of bonds, currencies and other complex securities. For many banks, the business became their lifeblood.”
  • “Now, a combination of tough regulations, new technologies, calm markets and changing customer behavior has left that type of trading a shadow of its former self — and much of Wall Street trying to redefine itself.”
  • “Five years ago, fixed-income trading — so called because its keystone product, bonds, typically provides a fixed payout — generated nearly $103 billion in income for the top 12 investment banks, according to Coalition, a London research firm.”
  • “By 2016, that had fallen to less than $76 billion — down $27 billion from the peak.”

FT – Bitcoin investors struggle to cash out new fortunes – Kate Beioley and James Pickford 1/12

  • “UK mortgage lenders refuse to accept deposits because of money laundering fears.”

 

January 12, 2018

Perspective

WSJ – Advisers at Leading Discount Brokers Win Bonuses to Push Higher-Priced Products – Jason Zweig and Anne Tergesen 1/10

  • “At Fidelity, Schwab and TD Ameritrade, employees win extra pay and other incentives to put clients in products that are more lucrative for them, and the firm.”

Worthy Insights / Opinion Pieces / Advice

Bloomberg View – Even Cynics Can Love Crypto – Matt Levine 1/11

  • “There are no true believers in pump-and-dump; only those who get in early and profit.”

FT – A bitcoin bubble made in millennial heaven – Roula Khalaf 1/10

MarketWatch – The man who called a new bull market in 2012 says take your profits now – Howard Gold 1/11

Mauldin Economics – The Moment of Truth for the Secular Bond Bull Market Has Arrived – John Mauldin 1/10

Markets / Economy

NYT – Investors Spooked at Specter of Central Banks Halting Bond-Buying Spree – Landon Thomas Jr. 1/10

  • “All told, the three central banks are sitting on $14 trillion in securities they have bought since 2009: a $4.4 trillion mix of Treasuries and mortgage securities held by the Federal Reserve; the European Central Bank’s $5 trillion in corporate and government bonds; and $4.5 trillion worth of bonds and exchange traded funds accumulated by the Bank of Japan.”
  • “Moreover, the view that the United States government, in the wake of the tax cut package, will have to issue more securities to finance a larger budget deficit is giving bond investors pause.”
  • “’The U.S. is about to issue a whole lot more debt in an environment where the demand for that debt is about to go down,’ said Daniel W. Drezner, a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University. ‘What that means is interest rates are about to go up’.”
  • “And that is bad news for bond investors.”

Real Estate

WSJ – Manhattan Rent Fell 2.7% in December to Median of $3,295 – Josh Barbanel 1/11

WSJ – Malls May Be Dying, But Bets Against Their Debt Haven’t Paid Off – Esther Fung 1/9

Energy

FT – New York sues big oil companies over climate change – Attracta Mooney and Ed Crooks 1/10

Finance

FT – Bitcoin tumbles as South Korea plans trading ban – Song Jung-a and Bryan Harris 1/10

WSJ – Bond Markets Have Picked Up the Wrong Signal From Japan – Anjani Trivedi 1/11

WSJ – Chinese Dragon Still Needs U.S. Treasurys for Its Hoard – Nathaniel Taplin 1/11

South America

WSJ – Daily Shot: Venezuela Monetary Base 1/10

WSJ – Daily Shot: Venezuelan Bolivares to USD Black Market Exchange Rate 1/10

January 11, 2018

Perspective

Reuters – Eastman Kodak unveils cryptocurrency, stock doubles – Noel Randewich 1/9

  • Really…

WSJ – Daily Shot: FactsMaps.com – US States Population Growth by Rate 1950-2016 1/9

Worthy Insights / Opinion Pieces / Advice

Economist – A small town in Japan doubles its fertility rate 1/9

  • “Subsidizing parenthood appears to work wonders.”

Economist – After a bumper 2017 will 2018 be kind to the financial markets? – Buttonwood 1/6

Markets / Economy

WSJ – Daily Shot: Advisor Perspectives – Buffett Indicators 1/9

Real Estate

Bloomberg Businessweek – Landlords Woo Startups With Built-In Clubs and Office Beers – Prashant Gopal and David M Levitt 1/5

  • “Stodgy office towers around the U.S. are getting millennial-friendly makeovers.”

Finance

MarketWatch – Ripple’s market cap cut in half as the cryptocurrency keeps falling – Victor Reklaitis 1/10

  • “Bitcoin falls below $14,000 while Ether coins rally.”

FT – China moves to shutter bitcoin mines – Gabriel Wildau 1/9

FT – US government bond sell-off gathers pace – Eric Platt and Robin Wigglesworth 1/10

  • “Ten-year yields near 2017 high as big bond investors declare the start of a new era.”

Environment / Science

UCSUSA.org: NOAA – U.S. 2017 Billion-Dollar Weather and Climate Disasters – Rachel Cleetus 1/8

China

Economist – China’s great firewall is rising 1/4

FT – Australia lashes out at China’s ‘useless’ Pacific projects – Mark Wembridge 1/10

  • “Canberra accuses Beijing of building roads to nowhere in developing nations.”

WSJ – Real News on Fake Data in China – Nathaniel Taplin 1/10

  • “There was some bad news from Inner Mongolia last week: Apparently its headline economic statistics are complete nonsense. The remote northern Chinese province, famous for its sweeping Midwest-like plains, said its 2016 industrial growth had been overstated by 40%, while government revenue was inflated a mere 26%.”
  • “The lesson is that Chinese GDP represents a reasonable long-term indicator of overall trends, but isn’t particularly helpful in capturing cyclical shifts, in part because figures from the more volatile, less diversified inland economies may be fudged during sharp slowdowns.”

January 10, 2018

Perspective

Howmuch.net – Credit Scores & Household Incomes in America – Raul 1/8

Pew – Most dads say they spend too little time with their children; about a quarter live apart from them – Gretchen Livingston 1/8

WSJ – Daily Shot: Deutsche Bank – Road Quality by US State 2016 1/9

Worthy Insights / Opinion Pieces / Advice

A Teachable Moment – Will Wealth Inequality Slay the Bull Market? – Anthony Isola 1/8

  • “Revolution is the ultimate Black Swan.”
  • “Thirty percent of U.S. households have zero or negative non-home wealth. One thing is certain; this is not the location of the ‘cash on the sidelines’.” 
  • “Unfortunately, wealth inequality is a feature, not a bug, of democracy and capitalism.”
  • “’According to research from the New York University economist Edward Wolff, the top 10 percent of American households now own 84% of all stocks. That’s up from 77% ownership in 2001′.”
  • “90% of America barely participated in the massive bull market the last several years.”
  • “’The majority of middle-class wealth is tied to homes, as more than 60% of investible assets are in a primary residence. Stock ownership makes up less than 10% of total assets for the middle class’.” 
  • But do you have the fortitude to suffer the draw-downs…
  • “The men who can manage men manage the men who can manage only things, and the men who can manage money manage all.” – Will and Ariel Durant

Bloomberg View – Stock Investors Will Benefit Most From Corporate Tax Overhaul – Ben Carlson 1/5

NYT – Amway Made China a Billion-Dollar Market. Now It Faces a Crackdown. – Ryan McMorrow and Steven Lee Myers 1/8

WSJ – China’s Strategy to Psych Out the West Is Paying Off – Andrew Browne 1/9

  • “The China scholar Perry Link once called the party ‘the anaconda in the chandelier’.”
  • “Just by hovering, it induces self-censorship and subtle behavioral changes.”
  • “‘Normally the great snake doesn’t move. It doesn’t have to,’ Mr. Perry wrote in a 2002 essay in the New York Review of Books.”
  • “‘Its constant silent message is ‘You yourself decide.””

Markets / Economy

WSJ – The Price Gap That’s Squeezing the Auto Market – Stephen Wilmot 1/8

WSJ – Daily Shot: US Consumer Credit Net Change 1/8

  • “Consumer credit balances saw the greatest monthly increase in 16 years.”

WSJ – Daily Shot: FRED – Total US Consumer Credit Relative to Disposable Personal Income 1/8

WSJ – Daily Shot: Piper Jaffray – US Consumers living beyond their means 1/8

WSJ – Daily Shot: FRED – Total Consumer Loans by Credit Unions 1/8

WSJ – Daily Shot: FRED – Total US Student Loan Balance 1/8

WSJ – Daily Shot: US Financial Accounts Q3 2017 1/8

WSJ – Daily Shot: Piper Jaffray – Consumer Confidence & Savings Rate Gap 1/8

  • “There is a widening gap between consumer sentiment and the savings rate. In the past, this divergence was a precursor to the end of the economic cycle.”

WSJ – Daily Shot: Market Ethos – US Output Gap 1/8

  • “The disappearance of the output gap also indicates that we are in the late stage of the cycle.”

Economist – Daily Chart: The fastest-growing and shrinking economies in 2018 1/5

Finance

WSJ – Daily Shot: Bitcoin 1/8

  • “Bitcoin appears to be range-bound, unable to breach the $17k level again.”

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

  • “Ripple took a massive hit on Monday before recovering partially.”

Environment / Science

NYT – These Billion-Dollar Natural Disasters Set a U.S. Record in 2017 – Kendra Pierre-Louis 1/8

South America

FT – Smuggled cattle and petrol join exodus from Venezuela – Gideon Long 1/8

  • “Criminal gangs seize opportunity posed by hyperinflation and a plunging bolivar.”

WSJ – Daily Shot: Bloomberg – Venezuela 10yr USD Bond Price 1/8

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.”

Finance

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

Shipping

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

Other Interesting Links

WSJ – Daily Shot: Pal, bro, buddy, fella, or dude? 1/8

January 8, 2018

Perspective

Visual Capitalist – Visualizing the Global Millionaire Population – Jeff Desjardins 1/4

Worthy Insights / Opinion Pieces / Advice

Bloomberg Gadfly – A French Challenge to Gundlach’s ‘Disaster’ Bond Theory – Mark Gilbert 11/17/17

  • “A record month for inflows into corporate bonds is ‘setting up a disaster for when rates rise & `investors’ learn that, yes, these bonds have rate risk’ was yesterday’s latest tweeted warning from Jeffrey Gundlach.”
  • “French utility Veolia Environnement SA is one of a handful of low-rated borrowers—assessed at BBB or lower by Standard & Poor’s—with fixed-rate debt repayable in three years or longer that trades at yields below zero in euros.”
  • “Veolia already has three-year paper that trades at a negative yield. Those bonds, however, were sold in 2005 at a yield of almost 4.5%; they dipped below zero for the first time last year, and recently turned negative once more.”
  • “But on Thursday, Veolia went one better by pulling off the neat trick of persuading investors to pay it directly to borrow, selling 500 million euros of bonds repayable in three years at a negative yield of 0.026%—’a first for a BBB issuer,’ the company trumpeted in a press release. What’s more, the sale was oversubscribed by more than four times.”
  • “Now, you could view the sale one of two ways. For the optimists, it provides evidence that investors are awash with cash and still confident that the European Central Bank’s bond-buying program will continue to support the market.”
  • “If, like Gundlach, though, you’re concerned that the world of fixed-income is in for a rude awakening and that the stress will first show up in the corporate bond market, you’ll probably view it as a last hurrah before reality hits home with a vengeance.”

FT – Iran and the oil price – Nick Butler 1/2

  • “Increasing oil exports would be an obvious way to fund more public spending.”

FT – Watch 10-year Treasury yields for signs of danger in 2018 – John Authers 12/29

  • “Investors should stay in stocks as a big bear market looks unlikely as early as 2018.”

Mauldin Economics – Outside the Box: Et Voila – Grant Williams 1/3

NYT – How Do You Vote? 50 Million Google Images Give a Clue – Steve Lohr 12/31

  • The more our world becomes ‘codified,’ the more insights will be derived, the less privacy we will have, and the more predictive the models will become…

WSJ – The Limits of Amazon – Christopher Mims 1/1

  • “The tech giant is very good at delivering what customers need, but is it as well positioned to sell them things they want?”

WSJ – Bitcoin Isn’t a Currency, It’s a Commodity – Price It That Way – Nathaniel Taplin 1/3

Real Estate

Housing Wire – Value of U.S. housing market climbs to record $31.8 trillion – Kelsey Ramirez 12/29

  • “The total value of all homes in the U.S. increased in 2017 to a total $31.8 trillion, according to the latest report from Zillow.”
  • “This is up from last year’s record high of $29.6 trillion, data from 2016 shows.”
  • “This is so high, that total homes in Los Angeles and New York City metro areas are worth $2.7 trillion and $2.6 trillion, respectively, the size of the U.K. and French economies.”
  • “This is an increase of $1.95 trillion over the past year, more than all of Canada’s GDP or two companies the size of Apple, Zillow’s report showed.”
  • “And renters are also now spending more money than ever before on housing, spending a record $485.6 billion in 2017. This is an increase of $4.9 billion from 2016.”
  • “Renting in San Francisco is especially expensive as renters collectively paid $616 million more than renters in Chicago, despite having 467,000 fewer renters in San Francisco.“
  • “Of the 35 largest U.S. markets, most home value growth occurred in Columbus, Ohio, which saw an increase of 15.1% to $152.3 billion in 2017.”

WSJ – You Got Priced Out of … Philadelphia? The Spread of Hot Housing Markets – Scott Calvert and Laura Kusisto 1/3

  • “The gentrification of the Fishtown neighborhood here looks like something city planners dream of, with developers renovating old row houses as young professionals, along with new restaurants and businesses, pile in.”
  • “But home prices have shot up so quickly in recent years that the latest wave of young professionals say they are having a hard time making the finances work.”
  • “Now several Philadelphia City Council members want to pass a law requiring property developers to set aside 10% of new projects as below-market units, to improve overall affordability in a city that once was among America’s biggest bargains.”
  • “Soaring housing costs aren’t confined to New York or San Francisco. Cities including Pittsburgh, Detroit, Buffalo and Nashville all have explored or adopted policies that, like Philadelphia’s, seek to create more cheap housing by an approach known as inclusionary zoning.”
  • “’It really underscores the housing-affordability problem is much more widespread than simply a problem in the 10 most expensive coastal cities,’ said Stockton Williams, executive director of the Terwilliger Center for Housing at the Urban Land Institute in Washington, D.C.”

WSJ – Private-Equity Funds Focused on Property Raising Less Capital – Peter Grant and Shefali Anand 1/4

  • “Private-equity funds that focus on real estate have been raising less money for the past few years, and chances are dim that there will be much pickup in fundraising in 2018.”
  • “But the reason for this trend isn’t that pension funds, endowments and other institutions that invest in private equity have lost their appetite for commercial property. A big part of the slowdown is that private-equity funds haven’t been able to spend all of the money they have raised, according to investors, analysts and fund managers.”
  • “The declining pace of fundraising and spending is partly due to the old age of the current real-estate cycle. Prices started rising in 2009 and remain near record levels in many cities, including San Francisco and New York, making it trickier to make new investments.”
  • “This is especially true for the most aggressive opportunistic private-equity funds that typically try to produce returns of at least 20%. Fundraising by these funds has fallen particularly sharply, dropping to $33.5 billion as of Dec. 27, compared with $43.8 billion in 2016 and $63.7 billion in 2015, Preqin said.”
  • “Still, the large amount of unspent cash sitting in the vaults of private-equity funds has been comforting to investors who are concerned the markets are due for a steep correction. As long as demand for property stays strong, prices are likely to remain healthy.”
  • “Green Street Advisors says that there was $136 billion of buying power sitting with private-equity firms and real-estate investment trusts at the end of 2017. That compares with about $120 billion at the end of 2016 and less than $80 billion at the end of 2011.”
  • “Another trend that some expect to accelerate in 2018: investors who buy stakes in real-estate fund managers. Dyal Capital Partners, which raises money to buy minority equity stakes in alternative asset managers, in 2016 purchased an interest in Starwood Capital Group.”
  • “Park Hill is seeing a number of large foreign investors who invest in real estate express an interest in buying into managers, Mr. Stark said. They are saying: ‘Rather than investing through some third-party manager, why don’t we buy into a manager,’ he said. ‘If you have enough capital you can leverage the talent and buy the machine, not just pay to rent one’.”

WSJ – Peak Commercial Real-Estate Prices Force Investors to Get Creative – Peter Grant and Shefali Anand 1/2

Finance

FT – Private equity turns to early loans to boost returns – Henny Sender 12/31

  • “Borrowed money improves fund rating on key metric of results over time but is risky.”

FT – How high-frequency trading hit a speed bump – Gregory Meyer, Nicole Bullock, and Joe Rennison 1/1

  • “Smaller volumes and a fall in market volatility have dented business – so much so that some are quitting.”

China

FT – China steps up capital controls with overseas withdrawal cap – Charles Clover and Tom Mitchell 12/31

  • Under the guise of preventing money laundering and terrorist financing, “China’s authorities have capped overseas withdrawals using Chinese bank cards at Rmb100,000 per year.”
  • “China has sought to limit foreign exchange purchases by its citizens in an effort to conserve forex reserves. The new measure plugs one of the few remaining ways Chinese citizens get money out of the country by broadening the Rmb100,000 ($15,400) limit from a single account to a single individual.”
  • “Previously, the annual limit of Rmb100,000 for overseas withdrawals was set for a single bank card.”
  • “An annual purchase limit of $50,000 worth of foreign currency per person remained unchanged, said the State Administration of Foreign Exchange (SAFE) in a statement on Saturday.”
  • “A regional currency analyst said that the move appeared to be a tightening of capital controls. ‘I was not expecting this since outflows have been slowing. But by doing this it clearly shows China’s desire to manage the outflows more aggressively, particularly on individual flows’ he said.” 
  • In other words, if you happen to make or to have made a meaningful amount of money in China, don’t plan on taking it home. It’s like a casino, the house always wins if you play long enough – especially, if you’re not allowed to leave the table with your chips.
  • The follow up question: will U.S. companies with meaningful overseas cash balances be allowed to repatriate funds in 2018 now that the U.S. tax laws have changed?

FT – Dalian Wanda to slim down ecommerce unit as it refocuses on core – Emily Feng 1/2

NYT – China Offers Tax Incentives to Persuade U.S. Companies to Stay – Sui-Lee Wee 12/28

Japan

FT – Japan Inc: a corporate culture on trial after scandals – Peter Wells and Leo Lewis 1/2

  • “Public admissions by some of the country’s greatest companies reveal deeper problems in how they are run.”

South America

WSJ – Cash-Strapped Venezuela Offers to Pay for Medicines With Diamonds – Kejal Vyas 1/4

  • “With hospital shelves bare and the government stumped on how to settle $5 billion in arrears to pharmaceutical companies, cash-strapped Venezuela recently offered some foreign suppliers alternative compensation: diamonds, gold and coltan, the rare metal used to make cellphones and Playstations.”
  • “While it isn’t clear if any of the companies accepted it, the proposal underscores how Venezuela’s economic collapse is forcing President Nicolás Maduro’s embattled administration to improvise to pay for goods as severe dollar shortages push the country toward a barter society.”
  • “Bartering is also creeping into daily street transactions for staples, partly because the government is too broke to print enough currency. The so-called Strong Bolivar, which the government created in 2008 by lopping three zeros off its previous currency, lost 97% of its value in 2017 alone as the oil-rich country plunges further into hyperinflation.“
  • “Using commodities as payment isn’t uncommon for large global companies trading in mining or oil, but is almost unheard of as a way to settle debts to other sectors like pharmaceuticals, according to Caracas-based economic consultant Orlando Ochoa.”
  • “Given the country’s opaque finances, it isn’t clear how much Venezuela holds in certified precious metals and stones.”
  • “As for the Health Ministry’s proposal to pharmaceutical suppliers, ‘It feels like a bluff,’ Mr. Ochoa said. ‘It’s as if they want to show off their assets to give the illusion that there’s still an intention of paying even though they can’t pay’.”
  • “Lower crude prices and nearly two decades of profligate public spending have left Venezuela’s economy—once Latin America’s most prosperous—in tatters. Gross domestic product shrunk by more than 16.5% in 2016, according to the government, and there is scant evidence of improvement in 2017. The International Monetary Fund estimates inflation will top 2,000% in 2018. The government has defaulted on more than $700 million in bonds in recent months, spurring drastic cuts in imports that have resulted in chronic shortages of food and medicine.”
  • “Tito López, head of Venezuela’s Pharmaceutical Industry Chamber, says because companies in his sector haven’t received payments from the government in more than a year, 95% of medications that were available three years ago aren’t now. Antibiotics and treatments for chronic illnesses like hypertension and diabetes are among those hardest to find.”
  • “In the past pharmaceutical companies operating in Venezuela have considered accepting bonds or even oil as payment, but the government has never followed through, Mr. López said. ‘What we’re missing is a serious system that actually guarantees payments,’ he added.”

January 5, 2018

Happy New Year!

I hope that you had a safe and enjoyable transition and I wish you a prosperous 2018.

While I wasn’t planning a post today, I don’t want to deluge you with too much content first thing Monday, so here is a mid-day post.

Cheers,

Duff

Perspective

NYT – Rise of Bitcoin Competitor Ripple Creates Wealth to Rival Zuckerberg – Nathaniel Popper 1/4

  • “The virtual currency boom has gotten so heated that it is throwing the list of the world’s richest people into disarray.”
  • “Consider what has happened to the founders of an upstart virtual currency known as Ripple, which has seen its value skyrocket in recent weeks.”
  • “At one point on Thursday, Chris Larsen, a Ripple co-founder who is also the largest holder of Ripple tokens, was worth more than $59 billion, according to figures from Forbes. That would have briefly vaulted Mr. Larsen ahead of Facebook chief executive Mark Zuckerberg into fifth place on the Forbes list of the world’s richest people.”
  • “Other top Ripple holders would have also zoomed up that list as the value of their tokens soared more than 100% during the last week — and more than 30,000% in the last year. The boom has turned Ripple into the second largest virtual currency, within striking distance of the original behemoth, Bitcoin.”
  • “While most of these currencies were worth nearly nothing a year ago, many are now responsible for creating billionaires — albeit with rapidly fluctuating fortunes. If this is a tulip fever, the fever has spread to chrysanthemums and poppies.”
  • “Ripple, whose tokens are known as XRP, is far from the only virtual currency being fueled by the hysteria. In 2017, there were 29 tokens — including Einsteinium and Byteball — that rose more than Bitcoin’s remarkable 1,600% jump, according to OnChainFx, a data provider.”
  • “Nearly 40 virtual currencies are worth more than $1 billion — when all the outstanding tokens are counted at their current value — despite many of them not having been used in any sort of transaction other than speculative trading.”
  • For perspective, “… all the outstanding Ripple tokens were worth $140 billion on Thursday, while all Bitcoin were worth $250 billion.”
  • “Mr. Larsen was Ripple’s chief executive from 2012 until he stepped down last year to become the company’s executive chairman. During his tenure, Ripple focused on helping banks use its software to shift money between different foreign currencies, something that most banks currently do through a cumbersome process involving separate accounts in every country where they operate.”
  • “Ripple has said it has signed up more than 100 banks to use the company’s technology, including American Express and Banco Santander.”
  • “But banks do not need to use Ripple tokens for Ripple’s software to transfer dollars, euros and yen. That point appears to be lost on many small time investors who are buying Ripple tokens.”
  • “Most of the buying and selling of Ripple tokens is happening in South Korea, according to data providers that track virtual currency exchanges, where ordinary investors have thrown money at a wide array of virtual currencies.”
  • “…Even virtual currency analysts who believe in Ripple’s software have said there is a big difference between Ripple the company being successful, and Ripple the token gaining enough traction to justify current prices.”
  • “’An impossibly long list of things already needs to go right for XRP to become a reserve currency for banks,’ Ryan Selkis, a virtual currency analyst, wrote in a post on Thursday.”
  • “But, Mr. Selkis added, that doesn’t mean Ripple’s price won’t keep ascending. Why? ‘Because this is crypto, and everyone in the industry is now slinging crack crypto cocaine to retail addicts,’ he wrote.”

WSJ – The Cashless Society Has Arrived – Only It’s in China – Alyssa Abkowitz 1/4

  • “Though the U.S. saw $112 billion of mobile payments in 2016, by a Forrester Research estimate, such payments in China totaled $9 trillion, according to iResearch Consulting Group, a Chinese firm.”
  • “For Alibaba and Tencent, the payoff isn’t just the transaction fees they make from merchants, typically 0.6%. It’s also the consumer data collected, which can transform their apps into marketing platforms for an expanding array of services, from bike sharing to travel.”
  • “Conditions in China made it ripe for this innovation. Credit cards never caught on in a big way. Discretionary spending wasn’t an option for most people until recent years, and there has long been a cultural aversion to debt in China. On top of that, the government made it tough for Visa Inc. and Mastercard Inc. to set up shop.”
  • “The rise of tech companies as financial powers has dealt a blow to traditional banks. China’s state-owned banks lost nearly $23 billion in fees in 2015 they might have collected from card fees, according to a November 2016 report from EY (formerly Ernst & Young) and Singapore’s DBS Bank. The report projected the annual fee loss could widen to $60 billion by 2020.”
  • “The larger problem for banks might be that Alibaba and Tencent often know more about their customers than they do. If a Beijing car dealer uses a bank debit card for a business trip to Shanghai, the bank knows what airline he or she flew, as well as the hotel and restaurants patronized. ‘But if the ‘customer interface’ is happening elsewhere, the bank has zero visibility over transactions,’ said James Lloyd, Asia-Pacific FinTech Leader at EY. ‘That’s not a good situation to find yourself in’.”
  • “Tencent and Alibaba say they have no plans to push their payment platforms to U.S. consumers. Many Americans don’t see the need for mobile payments, since their plastic cards and cash are welcomed and some merchants still accept checks.”
  • “’Any new way of paying has to prove itself to be incrementally better than any other options you have,’ said James Wester of research firm IDC Financial Insights. In the U.S., ‘plastic is convenient, widely accepted and understood by the customer’.”

Visual Capitalist – China’s Digital Wallets Offer a Glimpse at the Future of Payments – Nick Routley 12/30

NYT – Three Months After Maria, Roughly Half of Puerto Ricans Still Without Power – Frances Robles and Jess Bidgood 12/29

Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense – When Things Don’t Make Any Sense – Ben Carlson 1/4

  • Some perspective on the cryptocurrency boom.

FT – Fed risks massive hangover as it begins ‘great unwind’ – Michael Hassenstab (CIO – Templeton Global Macro) 12/27

  • “Only a strong economy can stop damage in Treasuries spreading to equities and credit.”

FT View – A healthy economy is a risk for stock markets 12/29

  • “If the big US tax cut that brought 2017 to a conclusion has its intended consequences, then capital expenditures will start to rise in the next year, as will wages. With consumer confidence high, that should lead to higher consumption. It would also lead to monetary policy at the tightest end of what currently seems probable. The European Central Bank and Bank of Japan would indeed desist from their asset purchases, the Federal Reserve would reduce its balance sheet, and liquidity would flow out of world markets. The Fed could be expected to raise rates four times.”
  • “This would be a consummation devoutly to be wished, vindicating both the belated fiscal stimulus that the US has just administered and the desperate muddle-through strategy that preceded it. But significantly higher rates and lower liquidity would be bad news for equity markets, which look historically expensive. High valuations can be justified while rates are historically low. Future earnings can be discounted at a low rate and the cash yields on stocks look attractive. But if all goes according to the US Republican party’s plan, interest rates will need to be significantly higher a year from now, and valuations will come under pressure.”
  • “The alternative scenario is that the tax cut achieves no meaningful stimulus, and is merely put towards higher corporate dividends and expensive mergers and acquisitions. The synchronized global economic recovery of the past year peters out, as other brief post-crisis recoveries have done. In this situation, the Fed tightens far less aggressively, other central banks blink and keep buying assets, and bond yields stay where they are, or even fall. On this gloomy prognosis, the legacy of the tax cut would be no more than greater inequality. But equity markets would enjoy much the same benign conditions they have had this year.”
  • “Amid Wall Street’s bullish prognoses for 2018, an inverse relationship is becoming clear. Those who are more optimistic for the economy tend to be more pessimistic about the prospects for risk assets. Some say they are so bullish they are bearish.”
  • “This is realistic. If monetary stimulus really does give way to a successful fiscal stimulus, investors should expect much higher volatility, and probably outright price falls, from equity markets.”

The Guardian – The sugar conspiracy – Ian Leslie 4/7/16

WSJ – China’s Bid to Dominate Oil Pricing Will Fail – Nathaniel Taplin 12/26

Markets / Economy

Bloomberg Quint – World’s Wealthiest Gain $1 Trillion in ’17 on Market Exuberance – Tom Metcalf and Jack Witzig 12/28

FT – Uber’s rise triggers financial crisis at taxi lenders – Alistair Gray 12/30

  • “Credit unions at risk of failure as loan losses mount.”

Real Estate

WSJ – Daily Shot: UBS Estimates – US Retail Store Closures 2017 – 1/5

FT – Brookfield moves into private rented sector for fresh profit – Aime Williams 12/29

  • “Fund manager to keep 1m sq ft space in Canary Wharf Group towers.”
  • “Brian Kingston, chief executive of Brookfield Property Partners, said property prices in London had ‘always been high’, but were now ‘very high’.”
  • “’You would always have people starting out renting, but they would graduate to owning,’ said Mr Kingston. ‘But in New York and London, you could be a fairly well-compensated individual and you could still not afford to buy’.”

Tech

FT – Travis Kalanick to sell part of his Uber stake for first time – Tim Bradshaw 1/4

  • “Deal will earn ousted chief over $1bn in sale to SoftBank as part of their tender offer.”

Entertainment

FT – China’s Hollywood romance turns sour – Matthew Garrahan and Charles Clover 12/26

China

NYT – China’s New Lenders Collect Invasive Data and Offer Billions. Beijing Is Worried. – Alexandra Stevenson and Cao Li 12/25

FT – China share pledges soar as founders seek new borrowing tools – Gabriel Wildau and Yizhen Jia 12/26

  • “Chinese stockholders are ramping up borrowing against shares, driving revenue for securities houses but creating risk of a chain reaction in the event of a sharp market downturn.”
  • “Shareholders in 317 Shanghai and Shenzhen-listed companies had pledged shares worth at least 40% of those companies by December 18, up from 224 companies on the same date a year earlier, according to Wind Info.”
  • “Share-pledging is especially common for small and mid-cap companies, where a single shareholder often owns a large stake. Controlling shareholders sometimes reinvest the proceeds into company projects or buy additional company shares on the secondary market to boost the share price.”
  • “In September China’s two main bourses published draft rules that would tighten regulation on share pledging. One provision caps the value of loans secured by shares at 60% of the market value of the pledged shares, ensuring a buffer that will protect the lender in case a share price falls.”
  • At least the mainland exchanges require that such pledges be disclosed, unlike the Hong Kong exchange, where other shareholders can be surprised.

Reuters – China’s lenders fret over debts lurking in shadow banking system – Engen Tham, Matthew Miller and David Lague 12/28