Month: March 2018

March 30, 2018March 29, 2018

March 30, 2018

Worthy Insights / Opinion Pieces / Advice

FT – Chinese tycoons have to play the connections game – Jamil Anderlini 3/28

“Making use of guanxi can be lucrative but is also fraught with danger.”

FT – Russia and the west’s moral bankruptcy – Edward Luce 3/28

“Vladimir Putin’s wealth extraction machine could not operate without our connivance.”

Markets / Economy

Bloomberg – Tesla Bonds Are in Free Fall – Molly Smith 3/28

“On Wednesday, Tesla’s notes plunged to a low of 86 cents on the dollar, the clearest sign yet creditors aren’t totally sure the company will be money good.”

FT – Record ‘megadeals’ push global takeovers beyond $1.2tn – Eric Platt, Javier Espinoza, and Don Weinland 3/28

WSJ – Daily Shot: BofAML – State and Local Government Pension Funding Status 3/29

Real Estate

WSJ – Daily Shot: John Burns RE Consulting – Burns Home Value Index 3/29

WSJ – Daily Shot: John Burns RE Consulting – US Housing Expansion Timelines 3/29

Energy

WSJ – Daily Shot: eia – US gross and net energy trade 3/29

Finance

FT – US subprime mortgage bonds back in fashion – Ben McLannahan and Joe Rennison 3/28

“Yield-hungry investors turn to assets blamed for financial crisis a decade ago.”

WSJ – Daily Shot: CBOE VIX Futures 3/28

Health / Medicine

WSJ – What, Cocktails Have Calories? New Rules Will Show How Many – Saabira Chaudhuri 3/23

China

FT – China accuses Anbang former chairman Wu Xiaohui of fraud – Gabriel Wildau and Yizhen Jia 3/28

“Chinese prosecutors have accused the former chairman of acquisitive conglomerate Anbang Insurance Group of fraud and embezzlement, offering the first detailed explanation of why authorities toppled the once high-flying tycoon.”
“Prosecutors on Wednesday accused Mr Wu of issuing false financial statements, marketing materials and regulatory filings to gain approval to sell such products. He also exceeded fundraising limits approved by the China Insurance Regulatory Commission, prosecutors alleged.”
“A whiff of political prosecution remains because the basic business model of selling universal insurance to finance high-profile acquisitions was not limited to Anbang, although Mr Wu’s group was the most aggressive.”
“Prosecutors alleged Mr Wu oversold Rmb724bn ($115bn) in insurance products, diverting Rmb65bn to another company he controlled, which he used for overseas investments, debt repayment and ‘lavish personal spending’. Mr Wu was also accused of concealing his control of Anbang through the other company.”
“They also accused Mr Wu of using proceeds from the sale of universal insurance to inject capital back into Anbang, a form of circular financing designed to boost the company’s reported capital ratio and create the impression of financial strength.”

NYT – Anbang Was Seized by China. Now, It Has a Deal for You. – Sui-Lee Wee and Zhang Tiantian 3/29

“Less than a month after it was seized by the Chinese government, Anbang Insurance Group, the giant conglomerate, is once again offering small investors ‘you snooze, you lose’ investment opportunities — your money back, guaranteed.”
“Sold like stocks or bonds in bank branches around China, the products carry names like Anbang Abundant Stability No. 10, suggesting the investments are conservative. They are anything but.”
“Still, Anbang and other companies keep selling them — and Chinese investors keep buying them. When China took over Anbang, it only underlined the widely held — and potentially dangerous — belief that the Chinese government will always be there to bail them out.”
“China has a problem with debt. Shadowy, underground lenders have flooded the country with a staggering $15 trillion in credit, which threatens to hobble its economy.”
“Beijing now appears to be taking a harder stance with the companies in need of a bail out. On Wednesday, Chinese authorities accused a founder of Anbang, who was the deal maker who bought the Waldorf Astoria, of bilking investors of more than $10 billion. In a country where courts tend to convict, the accusations raised the likelihood that the executive, Wu Xiaohui, could face life in prison.”
“The Chinese authorities have pressured big issuers to slow down. In November, they proposed tightening disclosure rules and stopping firms from guaranteeing payments to investors, among other steps.”
“Data suggest China is making some headway. The total outstanding balance of wealth management products issued by Chinese banks was about $4.7 trillion in 2017, up just 1.7% from a year before, according to China Wealth, a state-backed company that tracks China’s wealth management products. Two years ago, sales were growing at roughly 50%.”
“Zhu Ning, a Tsinghua University economist, said the only way the government can prevent investors from taking on more risk that they can handle is to allow for ‘some real failures’.”
“China has been reluctant to allow for failures. Fearing mass unrest, the ruling Communist Party has repeatedly instructed Chinese banks and local officials to cave in to angry investors, who have protested outside government offices after losing their investments.”
“The real test, according to Mr. Zhu, could come later this year, when wealth management products issued years earlier have to be paid back.”
“’Nonperforming loans are going to be so severe that some of the weaker banks will be forced to face their Judgment Day — whether they are going to be bailed out or whether they are going to die,’ he said.”

March 29, 2018March 28, 2018

March 29, 2018

Perspective

The Big Picture – Deutsche Bank: Household Net Worth is Down, except for Top 10% – Barry Ritholtz 3/28

Worthy Insights / Opinion Pieces / Advice

CNBC – Investment chief of $250 billion firm (Guggenheim investments) says financial markets are on a ‘collision course for disaster’ – Tae Kim 3/27

NYT – Income Mobility Charts for Girls, Asian-Americans and Other Groups. Or Make Your Own. – Emily Badger, Claire Cain Miller, Adam Pearce and Kevin Quealy 3/27

Visually stunning interactive income-mobility graphics.

Markets / Economy

WSJ – Wall Street Bankers Get Biggest Raise in Four Years – Telis Demos 3/26

Visual Capitalist – Wealth 101: Visualizing the Extraordinary Power of Compound Interest 3/28

Real Estate

WSJ – Retail Landlords Sell Assets to Raise Cash – Esther Fung 3/27

“Shares of real-estate investment trusts have underperformed the broader equity market for the third year running, in part because of rising interest rates, which cause these dividend-paying stocks to lose some of their appeal.”
“Because it would be difficult to issue new shares if REITs continue to trade at discounts, some are now compelled to sell assets to raise cash to help them reposition their remaining assets or fund share buybacks.”
“REITs could sell individual assets, sell stakes in assets to other institutional investors and enter joint ventures where they also could earn some management fees, or be acquired entirely and privatized by an investor.”
“Industry insiders noted that while there are more for-sale signs popping up, these sales aren’t driven by the need to reduce debt because REITs have been more disciplined since the financial crisis, so property prices aren’t likely to fall drastically.”
“Listed REITs have been net sellers of assets since 2015, according to data from Real Capital Analytics. From January to March 23 of 2018, there were $6.91 billion in disposals, compared with $5.38 billion in acquisitions.”
“Disposals topped acquisitions in 2017 and 2016, $60.9 billion to $56.1 billion and $71.4 billion to $48.4 billion respectively, Real Capital said.”

Energy

FT – Subsidy-free renewable projects on ‘cusp of breakthrough’ – Sylvia Pfeifer 3/27

“In a few months’ time, if all goes to plan, designs will be drawn up for a wind farm that will be built 22km off the Netherlands’ coast. Once up and running in 2022, Hollandse Kust Zuid will be able to call itself Europe’s first offshore wind farm built without government subsidies.”
“The wind farm, expected to be fully operational in 2023, will boast around 90 turbines that will deliver up to 750MW of power — enough to produce renewable electricity for up to 2m homes.”

WSJ – China Tries to Lift Yuan’s Profile With Oil Futures – Mike Bird 3/26

Finance

Investment News – Real estate fraudsters to repay $30 million to investors – Jeff Benjamin 3/28

“SEC settles with McKinley Mortgage, which promised secure investments and 6% returns.”

WSJ – Daily Shot: Bianco Research – 5-trading day ETF Flows by category 3/28

Cryptocurrency / ICOs

WSJ – Daily Shot: Bitcoin 3/28

WSJ – Daily Shot: Charlie Bilello – Cryptocurrency Returns 3/28

Australia

FT – China academics divided over Australia influence crackdown – Jamie Smyth 3/27

“Canberra’s proposed crackdown on Chinese government influence in Australia has prompted a bitter split among academics, following claims the policy is driven by racism and is stigmatizing Chinese Australians.”
“A group of 35 China scholars based in Australia signed an open letter on Wednesday defending the Australian government’s efforts to identify and wind back Chinese Communist party (CCP) influence in the country.”
“Canberra is proposing to ban foreign political donations and target covert, deceptive and threatening actions by foreign groups and individuals in response to alleged interference by the CCP in the country’s internal affairs and in Chinese diaspora communities.”
“The letter said accusations of racism were a tool used by the CCP to silence the debate over foreign influence and drive a wedge between Chinese communities and the rest of Australia.”

China

FT – China lets its rich invest more offshore as cash outflow fears ease – Don Weinland and Gabriel Wildau 3/27

“After a two-year wait, Chinese regulators have revived a program allowing global asset managers including JPMorgan Chase to raise funds from Chinese onshore clients for investment in offshore hedge funds.”
“The easing of capital controls shows how Chinese regulators are increasingly relaxed about cross-border capital flows amid a stable Chinese economy and persistent dollar weakness.”
“JPMorgan Asset Management has received a new quota for the program, and several other asset managers are expecting similar allotments, according to three people familiar with the situation. JPMorgan received a $50m quota in January, one of those people said.”

March 28, 2018March 27, 2018

March 28, 2018

Worthy Insights / Opinion Pieces / Advice

Bloomberg Gadfly – Users Built Facebook’s Empire, and They Can Crumble It – Nir Kaissar 3/26

FT – It is Venezuela’s crisis that is driving the oil price higher – Nick Butler 3/25

“While the Maduro-military alliance holds, output is likely to fall further.”

NYT – Live in a Drainpipe? Five Extreme Ideas to Solve Hong Kong’s Housing Crisis – Austin Ramzy 3/26

NYT – Repeal the Second Amendment – John Paul Stevens (retired associate justice of US Supreme Court) 3/27

NYT – New Leadership Has Not Changed Uber – Steven Hill 3/26

“The problem with Uber was never that the chief executive had created a thuggish ‘Game of Thrones’-type culture, as Susan Fowler, an engineer, described it in a blog post. The problem was, and still is, Uber’s business model: Its modus operandi is to subsidize fares and flood streets with its cars to achieve a transportation monopoly. In city after city, this has led to huge increases in traffic congestion, increased carbon emissions and the undermining of public transportation.”
“Most customers who love Uber don’t realize that the company subsidizes the cost of many rides. This is likely a major factor in Uber’s annual losses surging from 2.8 billion in 2016 to $4.5 billion in 2017. This seemingly nonsensical approach is actually Uber’s effort to use its deep pockets to mount a predatory price war and shut out the competition. That competition is not only taxis and other ride-sharing companies, but public transportation.”
“Ridership on public transportation is down in nearly every major American city, including New York City (which recorded its first ridership dip since 2009). This is hurting the revenue that public transportation needs to sustain itself. Uber passengers and public transportation users alike now find themselves stuck in heavy traffic for far longer because of what’s been called ‘Uber congestion.’ In Manhattan, there are five times as many ridesharing vehicles as yellow taxis, which has caused average speeds to decline by 15% compared with 2010, before Uber.“
“Ride-sharing services could potentially add something positive to our transportation options, but only if they are regulated properly.”
“First, regulators should limit the number of ride-sharing cars. Traditional taxis already have a sensible limit to minimize congestion. A balance must be found between having enough taxi-type vehicles but not so many that the streets are choked with traffic. Fix NYC, a panel appointed by Gov. Andrew Cuomo of New York, has called for all Ubers, Lyfts and taxis to be outfitted with GPS technology to track congestion and to charge a fee on for-hire vehicles that could help reduce traffic and generate hundreds of millions of dollars for public transportation.”
“Second, Uber should be prohibited from subsidizing its fares. It should be required to charge at least the true cost of each ride. If Uber refuses, a ‘fairness fee’ should be added to each fare.”
“Third, ride-sharing companies and their vehicles should be required to follow the same laws as traditional taxis, especially in terms of background checks for drivers and insurance requirements.”
“Fourth, Uber should be required to share its data with regulators, including information about its drivers and their contact information, so that members of this ‘distributed work force’ can more easily contact one another and organize collectively if they choose.”
“Finally, regulations should ensure that Uber treats its drivers fairly. Mr. Khosrowshahi asserts that drivers’ wages are adequate, but according to one study, more than half of Uber drivers earn less than the minimum wage in their state, and some even lose money once the costs of driving are taken into account. That helps explain why, according to Uber’s own internal study, half of its drivers leave after a year.”

WSJ – Turkey Is the One to Watch for Emerging Markets Risk – Richard Barley 3/26

WSJ – How a Tiny Latvian Bank Became a Haven for the World’s Dirty Money – Drew Hinshaw, Patricia Kowsmann, and Ian Talley 3/26

Markets / Economy

WSJ – Libor’s Rise Accelerates, Squeezing Short-Term Borrowers – Ben Eisen and Chelsey Dulaney 3/27

“The three-month London interbank offered rate climbed to 2.29% in the U.S. on Monday, its highest since November 2008. Libor measures the cost for banks to lend to one another and is used to set interest rates on roughly $200 trillion in dollar-based financial contracts globally, from corporate loans to home mortgages.”
“Libor has been rising for the last 2½ years as the Federal Reserve lifts its key policy rate, but recently the pace has picked up. It has climbed nearly a full percentage point in the last six months—outpacing the Fed—and could rise further with the approaching end of the quarter, typically a time of elevated demand for short-term funds in the banking sector, analysts say.”
“Demand for dollars at the end of the first quarter could send Libor up an additional 0.2 percentage point in the coming days, market analysts say, as investors rebalance their portfolios and banks rein in their balance sheets. The end of March also marks the finish of Japan’s fiscal year, potentially compounding the moves as big investors bring money back to Japan.”
“Libor has already sprinted ahead of the rates indicated by central bank policies, an acceleration that has baffled economists and traders. That widening gap has alarmed those who watch it as a signal of stress in the financial system. Others have pinned it on a series of technical factors, such as rising short-term debt sales by the U.S. government and new corporate tax policies.”
“Other markets that can be tapped for dollars—including through the swaps market and liquidity lines maintained by global central banks—aren’t yet showing a big dollar squeeze.”

Real Estate

The Big Picture – WeWork: Manhattan’s 2nd-biggest Private Office Tenant – Barry Ritholtz 3/27

FT – House prices falling in two-fifths of London postcodes – James Pickford 3/26

“House prices are falling in two out of five London postcodes, according to research that underlines the growing divergence between prices in southern English cities and those elsewhere in the UK.”
“The average annual rate of price growth in the capital has slowed to 1%, down sharply from 4.3% a year ago, meaning it is at its lowest level since August 2011, according to research by Hometrack, a housing market analyst. This stands in contrast to UK-wide average house price growth of 5.2% in the year to February 2018, up from 4% a year ago.”
“Prices are under greatest pressure in central London, where owners of the most expensive types of property began cutting prices in 2015 responding to the impact of higher taxes. In the past year, however, the trend has deepened in areas beyond the prime zones of Westminster and Kensington & Chelsea. The boroughs that saw the greatest drop in value were the City of London, Camden, Southwark, Islington and Wandsworth, according to Hometrack’s research.”
“Hometrack is predicting that the number of areas of the capital experiencing falling house prices will multiply during this year as trapped sellers reduce their asking prices to drive through transactions. ‘The net result will be a negative rate of headline price growth for London by the middle of 2018,’ the research said.”
“Outside southern England, house prices are more likely to be rising, in some places at a substantial pace. Edinburgh, Liverpool, Leicester, Birmingham and Manchester are adding more than 7% a year to their average house price, Hometrack found, with Leeds, Nottingham and Sheffield pegging rises of 6% or more.”
“The laggards in the 20-city index were Aberdeen (down by 7.7%), Cambridge (down by 1.5%) and Oxford (up by just 0.5%).”

NYT – Grocery Wars Turn Small Chains Into Battlefield Casualties – Michael Corkery 3/26

WSJ – Homeowners Ditch Refinancings as Mortgage Rates Rise – Christina Rexrode 3/26

“Last year, 37% of mortgage-origination volume was because of refinancings, according to industry research group Inside Mortgage Finance. That is the smallest proportion since 1995, and the number of refinancings is widely expected to shrink again this year. In 2012, refinancings were 72% of originations.”
“While purchase activity has climbed steadily from a post-financial-crisis nadir in 2011, growth in 2017 wasn’t enough to offset a $366 billion decline in refinancing activity. The result: The overall mortgage market fell around 12%, to $1.8 trillion, according to Inside Mortgage Finance.”
“What’s more, there are fewer homeowners eligible to refinance because of rising rates. The number of borrowers who could benefit from a refinancing is down about 37% from the end of last year, estimates Black Knight Inc., a mortgage-data and technology firm. At 2.67 million potential borrowers, this group is at its smallest since 2008.”
“Home-purchase activity has so far been holding up. Sales of previously owned homes in February rose 1.1% from a year earlier, countering worries that a downturn the previous month signaled a peak for the market.”
“Still, rising interest rates, a shortage of housing inventory and higher home prices are all long-term threats to purchase activity.”
“For refinancings, rising rates are a more immediate worry. Freddie Mac said last week that the average rate on a 30-year fixed-rate mortgage was 4.45%, up from 3.95% at the beginning of the year.”
“The Mortgage Bankers Association expects mortgage-purchase volume to grow about 5% in 2018 but refinancing volume to drop 27%. Refinance applications fell 5% in the week ended March 16 from the prior one, according to the group.”

Cryptocurrency / ICOs

Bloomberg – Fewer Americans Hold Cryptocurrencies Than You Probably Think – Olga Kharif 3/16

“More than 90% of American adults don’t own cryptocurrencies – and most have a lot of concerns about the coins, a new survey from Finder found.”

Fishing

Bloomberg – Maine’s Lobster Tide Might Be Ebbing – Justin Fox 3/23

“The numbers came in earlier this month on Maine’s 2017 lobster harvest. By historical standards, the 110.8 million-pound, $434 million haul was pretty spectacular. But it was a lot lower than 2016’s 132.5 million-pound, $540 million record, and it was another sign that the Great Lobster Boom that has surprised and delighted Maine’s lobster fishermen since the 1990s — and brought lobster rolls to diners from coast to coast — may be giving way to … something else.”
“The lobster boom does not seem to be the result of overfishing; Maine’s lobster fishermen figured out a set of rules decades ago that appear to allow them to manage the catch sustainably. There are just lots and lots more lobsters off the coast of Maine than there used to be. Why? In a column last spring, I listed four reasons that I’d heard during a trip to Maine:”
- “Warmer temperatures in the Gulf of Maine.”
- “A collapse in the population of cod, which eat young lobsters.”
- “Reduced incidence of a lobster disease called gaffkemia.”
- “Increased effort and efficiency on the part of lobstermen, who go farther offshore and can haul in more traps in a day than they used to.”
“Given how quickly the lobster harvests grew, though, especially from 2007 through 2012, it’s hard not to wonder whether they might not eventually collapse. They already have in several states farther down the Atlantic coast. Lobster landings were still on the rise as of 2016 (data aren’t available yet for 2017) in New Hampshire and Massachusetts but peaked in Rhode Island in 1999, Connecticut in 1998, New York in 1996 and New Jersey in 1990.”
“So that’s some evidence for the warming-ocean-temperatures theory of the lobster boom. This would imply that eventually even the oceans off Maine will get too warm, although it doesn’t give much of a hint as to when.”
Canada has been benefiting as well.

March 27, 2018March 26, 2018

March 27, 2018

Perspective

WSJ – Retirees Reshape Where Americans Live – Janet Adamy and Paul Overberg 3/22

WSJ – Daily Shot: Ratio of Twitter Bacon-to-Kale Mentions 3/26

Worthy Insights / Opinion Pieces / Advice

Bloomberg Gadfly – For Tesla, Cars + Cash + Credit + Convertibles = Crunch Time – Liam Denning 3/23

“Opinions differ on the exact nature of Tesla, ranging from struggling car manufacturer to tech pioneer to something akin to the second coming. Regardless, it is undoubtedly one thing: a money machine.”
“I don’t mean that in the sense of Tesla making a lot of money; more that it is a machine for the raising and consumption of money.”
“All companies are this to one degree or another, of course; it’s just that Tesla Inc. is more at the ‘another’ end of things. Reliably negative on free cash flow, Tesla depends on a smorgasbord of external funding, from equity raising to vehicle deposits to high-yield bonds to securitized leases to negative working capital. And that smorgasbord rests, of course, on Tesla’s famously gravity-defying stock price and faith in CEO Elon Musk.”
“Which is why these four charts deserve more than a glance from even the most ardent Muskovite:”

“We’re just over a week away from knowing whether or not Tesla has hit its (much reduced) target for producing 2,500 Model 3s per week by the end of the first quarter. The signs thus far aren’t good, which also raises doubts about the 5,000-a-week target for the end of June.”
“Hitting these targets matters for the Tesla money machine on three fronts.”
“First, reducing that risk-laden reliance on negative working capital and getting a return on the money already spent on production lines relies on producing more cars. Second, analysts currently expect Tesla to burn through $2.7 billion of cash this year — and analysts tend to be optimistic on this stuff. Third, when Moody’s rated that bond Tesla sold last August, it was assuming 300,000 Model 3 deliveries this year, which now looks far out of reach.”
“In other words, Tesla’s money machine will almost certainly need to raise more this year due to the Model 3’s problems — but those same problems undermine the pitch for selling more equity or debt.”
“This is happening against a backdrop of rising interest rates. Tesla’s debt has jumped in recent years, especially after it took on SolarCity Corp.’s obligations. Interest expense more than doubled in 2017 and reached the astounding level of one-third of gross profit in the final quarter of 2017:”
“At the same time, Tesla is moving closer to a maturity wall, with $3.7 billion of bonds and credit lines needing refinancing by the end of 2020.”
“Some $1.7 billion of that consists of three convertible bonds falling due between this coming November and the next one. Almost half of it — inherited from SolarCity — is hopelessly out of the money, with conversion prices starting at $560 (Tesla closed Thursday at $309 and change). The rest of it, a $920 million convertible due next March, sports a conversion price of just under $360; still underwater but within sight of the surface.”
“Converting that last one to equity would dilute Tesla’s free float by 2%. But that could be more palatable than the alternative of replacing it with a straight bond.”
“As of now, those three bonds pay a weighted-average coupon of just over 1%, or about $18 million a year. All else equal, assuming they were all refinanced at spreads similar to where Tesla’s 2025 bonds trade now, but factoring in the forecast increase in Treasury yields, that would jump to 7%, or $120 million. Putting that in context, Tesla’s entire interest expense last year was $471 million.”
“A rebound in the stock price would take much of this pain away, of course.”

Bloomberg Gadfly – Uber’s India Doom Is Written After Singapore Falls to Grab – Andy Mukherjee 3/26

Bloomberg – Airlines Are Asking the Trump Administration to Bring Back Hidden Fees – Nikki Ekstein 3/23

“Third-party booking platforms have made buying a plane ticket more transparent than ever. But airlines are fighting to keep data out of their hands.”

Markets / Economy

Bloomberg Businessweek – The Great Inflation Mystery – Peter Coy 3/22

Finance

WSJ – Want to Be a High-Frequency Trader? Here’s Your Chance – Alexander Osipovich 3/23

WSJ – Daily Shot: Biggest Three Banks Gobble Up $2.4 Trillion in New Deposits Since Crisis – Rachel Louise Ensign 3/22

Health / Medicine

Business Insider – What the color of your urine says about your health and hydration – Kevin Loria and Jenny Cheng 3/25

Automotive

FT – Carmakers take electric fight to the factory floor – Patrick McGee 3/18

“Today, established carmakers flaunt their ability to manufacture all kinds of models, from hatchbacks to sport utility vehicles, on a single production line. Their challenge is to revamp these operations to produce electric vehicles in high volumes, reinforcing barriers to entry in an industry under siege from technology companies and start-ups.”
“Instead of coming out with an array of unprofitable electric cars today, the incumbents are putting the bulk of resources into production facilities that will mass-produce models from 2020, once battery costs fall and economies of scale kick in. Analysts suggest this approach leaves the impression the incumbents are lagging far behind Tesla. But once the game actually starts, say experts, the carmakers will be in a strong position to dominate the market.”
“’None of the traditional car manufacturers will have problems scaling up electric vehicle production,’ says Klaus Stricker, co-head of the global automotive practice at Bain & Company. ‘That’s exactly what they do best’.”
“Yet if the stock market is any guide, investors are more skeptical. Valuations of the big carmakers are among the most depressed on the S&P 500, Germany’s DAX and Japan’s Nikkei indices, according to Bernstein. Yet Tesla is valued like its products are set to dominate the car market the way Apple conquered mobile phones.”
“Tesla’s market value of $55bn is about $2.3bn more than GM’s, though for every car it built last year the latter group produced 100.”
“Tesla’s production troubles are a reminder that in automotive history, it is how to build cars, rather than the merits of any particular model, that is key to success. After Ford displaced craft production with mass assembly in 1908, it was overtaken by GM in the 1920s with ‘flexible mass production’ that could produce an array of models, from entry-level to luxury brands, and respond to customer preferences. In the 1980s, both companies were disrupted by Honda and Toyota’s methods of lean production. The Japanese groups outsourced a majority of tasks previously considered critical. With parts arriving ‘just in time’ on the assembly line, they largely did away with inventories.”
“The success of German manufacturers, whose volumes more than trebled from 4m units in 1990 to 15m last year, was largely based on ‘platform sharing’ that let multiple models use the same design underpinnings. VW Group, the world’s largest carmaker, uses common building blocks under ‘the Lego principle’ to share engines, transmissions and components across its 12 brands.”
“These progressive changes were all based on superior methods of producing cars, forcing rivals to adapt or die. ‘Efficiency was always the cornerstone of success in the automotive industry,’ says Oliver Zipse, head of production at BMW. ‘As soon as you were not able to produce in a particular cost frame, you were out of the market’.”

China

Bloomberg Businessweek – The New Head of China’s Money Machine Faces a Delicate Balancing Act – Enda Curran 3/19

March 26, 2018March 25, 2018

March 26, 2018

Markets / Economy

FT – IMF warns of mounting debt crisis risk in poor countries – Kate Allen 3/22

“The world’s poorest countries are increasing their borrowing at a worrying pace and face the mounting risk of debt crises, the IMF has warned.”
“Since 2013, the median ratio of public debt to gross domestic product in low-income countries has risen 13 percentage points to hit 47% in 2017, according to new research by the IMF.”
“The research found that 40% of low-income developing countries face ‘significant debt-related challenges’, up from 21% just five years ago.”
“Fiscal deficits rose between 2013 and 2017 in nearly three-quarters of the nations the IMF studied, and in nearly half of those cases the deficit increase came despite a decline in investment, an indication that the debt was not being put to productive use economically. “
“As a result it is becoming increasingly likely that more poor countries will face a debt crisis, the IMF staff paper said.”

Real Estate

Bloomberg – The Manhattan Luxury-Home Market Is Screaming: I’m Overpriced! – Oshrat Carmiel 3/23

“Homes prices at $4 million or more that went into contract in the first 12 weeks of the year had their asking prices cut by an average of 10%, the most in data going back to 2012, according to Olshan Realty Inc.”

FT – China looks to Reits to ease housing woes – Gabriel Wildau and Yizhen Jia 3/22

“Xi’s drive to encourage building of residences for rent opens market worth a potential $2tn.”
“Since 2014, 30 quasi-REITs worth Rmb65bn have been issued on the Shanghai and Shenzhen stock exchanges and through private placements, according to the China REITs Alliance, an industry group.”
“But these products trade over the counter, so liquidity is poor. Most are also not accessible to retail investors. Some also differ from true REITs because their yields derive partly from capital appreciation, not only rental income.”
“The value of Chinese REITs could reach Rmb4 to Rmb12tn if their share of gross domestic product or of total real estate assets were comparable to the same ratios in the US, according to estimates last year by researchers at Peking university’s Guanghua School of Management.”
“But experts say a more active REITs market in China requires action from the tax bureau. The boom in Chinese housing and land prices over the past decade means that absent new policy, older property sold off to a REIT would be subject to large capital gains taxes.”
“High property prices also mean that rental yields are low — often less than 3% for commercial real estate and under 1% for residential. Without tax benefits, dividend yields on REITs would be too low to attract investor interest.”

Environment / Science

BBC News – Plastic patch in Pacific Ocean growing rapidly, study shows – Helen Briggs 3/22

“A collection of plastic afloat in the Pacific Ocean is growing rapidly, according to a new scientific estimate.”
“Predictions suggest a build-up of about 80,000 tons of plastic in the ‘Great Pacific Garbage Patch’ between California and Hawaii.”
“This figure is up to sixteen times higher than previously reported, say international researchers.”
“One trawl in the center of the patch had the highest concentration of plastic ever recorded.”

March 23, 2018March 22, 2018

March 23, 2018

Perspective

WSJ – Daily Shot: Cost per Unit – Penny and Nickel 3/22

Maps on the Web: Reddit – Literal Meaning and Origin of US State Names 3/21

Worthy Insights / Opinion Pieces / Advice

FT – Anti-Semitism in the age of Donald Trump – Edward Luce 3/21

“The west’s largest taboo is creeping back from the fringes, most remarkably in the US and UK.”

Grub Street – The Last Conversation You’ll Ever Need to Have About Eating Right – Mark Bittman and David Katz 3/18

Markets / Economy

Bloomberg – Cheerios Maker Is the Latest Victim of U.S. Trucker Shortage – Craig Giammona 3/21

Cryptocurrency / ICOs

FT – Swiss authorities tread wary path through ‘Crypto Valley’ – Ralph Atkins 3/19

Japan

Bloomberg Businessweek – Japan’s Prisons Are a Haven for Elderly Women – Shiho Fukada 3/16

“Every aging society faces distinct challenges. But Japan, with the world’s oldest population (27.3% of its citizens are 65 or older, almost twice the share in the U.S.), has been dealing with one it didn’t foresee: senior crime. Complaints and arrests involving elderly people, and women in particular, are taking place at rates above those of any other demographic group. Almost 1 in 5 women in Japanese prisons is a senior. Their crimes are usually minor—9 in 10 senior women who’ve been convicted were found guilty of shoplifting.”
“From 1980 to 2015, the number of seniors living alone increased more than sixfold, to almost 6 million. And a 2017 survey by Tokyo’s government found that more than half of seniors caught shoplifting live alone; 40% either don’t have family or rarely speak with relatives. These people often say they have no one to turn to when they need help.”

March 22, 2018March 21, 2018

March 22, 2018

Perspective

NYT – The Population Slowdown in the Outer Suburbs of the East and Midwest – Robert Gebeloff 3/21

Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense – Headline Risk – Ben Carlson 3/21

Bloomberg Gadfly – The Saudi Aramco IPO Math Problem: Cash > Barrels – Liam Denning 3/15

“Getting to a $2 trillion valuation requires some heroic assumptions.”

Bloomberg View – Before You #DeleteFacebook, Try Taking Control – Barry Ritholtz 3/21

“A precept from the 1970s, said originally about television (back when TV was free), is applicable to technology and media: If you are not paying for a product, then you are the product.”

FT – Hard-headed deterrence is the antidote to Putin’s poison – Philip Stephens 3/14

FT – The low-paid workers cleaning up the worst horrors of the internet – Gillian Tett 3/16

“A new film (The Cleaners) tracks outsourced workers in grim little cubicles watching the depravity that exists online.”

NYT – Trump Hacked the Media Right Before Our Eyes – Ross Douthat 3/21

“…the business model of our news channels both assumes and heightens polarization, and that it was ripe for exploitation by a demagogue who was also a celebrity.”

NYT – Fox News Analyst Quits, Calling Network a ‘Propaganda Machine’ – Michael M. Grynbaum 3/20

NYT – Toys ‘R’ Us Case Is Test of Private Equity in Age of Amazon – Michael Corkery 3/15

Pragmatic Capitalism – Why are Money Managers Paid so Much? – Cullen Roche 3/20

“Salesmanship. The answer is salesmanship. I’ve been in this business long enough to know that asset management is mostly about selling the hope of superior returns in exchange for the guarantee of high fees. The problem for the average person is that they don’t actually know enough about the asset management business to quantify whether their investment manager is worth the fees they pay. And in fairness, a big part of that is due to the fact that you have to compare yourself to a counterfactual that doesn’t exist since paying 1.6% per year to invest in a crappy active mutual fund is probably a better result than sitting in cash all the time because you’re too scared to get fully invested. Investment managers, as expensive as they are, at least keep you in the game and you need to be in the game to score any goals.”

Rational Radical – Royal commission shatters housing bubble façade – Matt Ellis 3/21

Commentary on the Australian Housing market (read bubble)

The Verge – China will ban people with poor ‘social credit’ from planes and trains – Sean O’Kane 3/16

“Starting in May, Chinese citizens who rank low on the country’s burgeoning ‘social credit’ system will be in danger of being banned from buying plane or train tickets for up to a year, according to statements recently released by the country’s National Development and Reform Commission.”
“With the social credit system, the Chinese government rates citizens based on things like criminal behavior and financial misdeeds, but also on what they buy, say, and do. Those with low ‘scores’ have to deal with penalties and restrictions. China has been working towards rolling out a full version of the system by 2020, but some early versions of it are already in place.”
“The new travel restrictions are the latest addition to this growing patchwork of social engineering, which has already imposed punishments on more than seven million citizens. And there’s a broad range when it comes to who can be flagged. Citizens who have spread ‘false information about terrorism,’ caused ‘trouble’ on flights, used expired tickets, or were caught smoking on trains could all be banned, according to Reuters.”

Wolf Street – Then Why Is Anyone STILL on Facebook? – Wolf Richter 3/20

Markets / Economy

WSJ – Daily Shot: Nomura – Valuations of FANG-type stocks 3/20

WSJ – Daily Shot: Bianco Research – Breaking Down US Household Retirement Assets 3/21

Energy

WSJ – Daily Shot: Venezuelan Crude Oil Output 2/28

Finance

FT – John Paulson takes an axe to his struggling hedge fund – Robin Wigglesworth 3/16

“Struggling hedge fund magnate John Paulson has taken an axe to his once-imperious firm, with several top executives departing in a ‘rightsizing’ this week after a string of heavy losses.”
“Mr Paulson rose to fame after the crisis, when Paulson & Co made billions of dollars from predicting the US housing crisis and astute bets on complex credit derivatives. The hedge fund firm’s assets under management hit a peak of $38bn in 2011.”
“But since then Paulson & Co has suffered a string of losses across most of its hedge funds, with its flagship merger arbitrage fund — Mr Paulson’s specialty — losing 18.1% and 23% in 2016 and 2017, respectively, according to the performance update of a mirror fund offered by Schroders.”
“Paulson & Co’s assets have now shrunk to about $9bn, of which two-thirds is Mr Paulson’s own money, and this week the hedge fund manager let a string of employees go.”
“Since making one of the biggest financial hauls in the industry’s history — Mr Paulson personally made almost $4bn from the financial crisis — the firm has made a series of ill-fated investments, such as on healthcare stocks, banks and gold and by betting against German bonds.”
“The most high-profile recent mis-step was a big bet on drug maker Valeant Pharmaceuticals. Paulson & Co is the drug maker’s single biggest shareholder, but the stock has tumbled from a high of $262.50 in 2015 to just $16.80 this week — a loss of more than 93% over the period.”
“Paulson & Co’s biggest public holdings, according to regulatory filings, are pharma companies Mylan, Shire, Valeant and Allergan, as well as an exchange-traded fund that tracks the price of gold. The gold ETF has lost about 32% of its value since the hedge fund’s investment peaked at $4.6bn in 2011.”

Health / Medicine

WSJ – Daily Shot: AEI – Geographic Variation in the Cost of the Opioid Crisis – Alex Brill 3/20

March 21, 2018

Perspective

AEIdeas – Creative Destruction, the Uber effect, and the slow death of the NYC taxi cartel – Mark J. Perry 3/17

WP – Toys R Us’s baby problem is everybody’s baby problem – Andrew Van Dam 3/15

“There are endless reasons a big-box toy store would collapse during a retail apocalypse — and Toys R Us acknowledged a number of them in its most recent annual filing: the teetering tower of debt incurred by its private-equity owners, competition from Amazon, Walmart and Target.”
“They even wrung their hands about app stores, labor costs and potential tariffs raising the costs of the imported goods they sell.”
“But one risk stood out. Toys R Us said there just weren’t enough babies…”
“It may not have been the biggest existential threat confronting Geoffrey the Giraffe (the store’s mascot), but it’s the one with the broadest implications outside of the worlds of toys and malls.”
“Measured as a share of overall population, U.S. births have fallen steadily since the Great Recession. They hit their lowest point on record in 2016 — the most recent year for which the Centers for Disease Control and Prevention has comparable data.”
“Even adjusted for the aging population and declining share of women of childbearing age, U.S. fertility rates are at all-time lows.”
“That’s problematic for Toys R Us, which also operates the Babies R Us stores. The company claims in its annual report that its income is linked to birthrates, and it appears to be right.”
“There are, to be sure, numerous other factors at play. The same economic forces that encourage people to have children may also encourage them to splurge on toys, for example.”
“But it’s nonetheless apparent that Toys R Us’s fortunes rise and fall with the population of its target market.”
“And that’s why the company’s demise should worry the rest of us. Toys R Us focuses on kids, so it’s feeling the crunch from declining birthrates long before the rest of the economy. But it’s just a matter of time before the trends that toppled the troubled toy maker put the squeeze on businesses that cater to consumers of all ages.”
“Eventually, unless the country does something significant to encourage larger families or immigration, that narrowing base of the population pyramid will crawl upward.”
“In the end, Toys R Us will just have been the first of many businesses of all descriptions facing the same hard demographic truth: Economic growth is extremely difficult without population growth.“

Worthy Insights / Opinion Pieces / Advice

Bloomberg – How Amazon’s Bottomless Appetite Became Corporate America’s Nightmare – Shira Ovide 3/14

Bloomberg Quint – The World Economy Risks Turning Too Hot to Handle as G-20 Meets – Enda Curran and Rich Miller 3/15

CNN Money – Amazon didn’t kill Toys ‘R’ Us. Here’s what did – Chris Isidore 3/15

Economist – Malaysia’s PM is about to steal an election – Leaders 3/10

Impunity…

FactsMaps – US News – U.S. Best States Overall Ranking – 2018

FT – Fresh blood: why everyone fell for Theranos – Andrew Hill 3/18

FT – Saudi Aramco: sand trap – Lex 3/12

“Justifying a $2tn valuation for the state oil company requires hard persuasion.”

Maps on the Web – Average ACT score by US State – Reddit 3/19

NYT – Big Sugar Versus Your Body – David Leonhardt 3/11

Markets / Economy

Economist – America’s companies have binged on debt; a reckoning looms 3/8

“The total debt of American non-financial corporations as a percentage of GDP has reached a record high of 73.3%”

WalletHub – Credit Card Debt Study: Trends & Insights – Alina Comoreanu 3/8

Real Estate

Business Insider – American homes are more affordable than they’ve been in 40 years – but that could change sooner than you think – Tanza Loudenback 3/19

“‘Thanks to low mortgage rates, buying a home is actually more affordable now than in the past 40 years,’ Alexandra Lee, a housing data analyst at Trulia, told Business Insider.”
“Mortgage interest rates hit 16.6% in 1981 in response to massive inflation in the US. In 2016, interest rates fell to about 3.5%, and they’re about 4.5% right now.”
“Trulia found that the typical household in 1980 could afford only about three-fourths of the median home price, compared with the median household in 2016, which could afford a home 1 1/2 times the median home price.”
“Twenty-two US metros crossed the threshold from unaffordable to affordable over the past four decades, according to the data. The markets that are too expensive for the average buyer now, including San Francisco, Seattle, and San Jose, California, were always too expensive.”
“Trulia ultimately found that Americans’ homebuying power has strengthened in the past 40 years.”
“Take Salt Lake City, for example. From 1990 to 2016, home prices increased 53%, but the affordability index jumped to 131 from 122. That is because interest rates dropped to 3.4% from 10% during that time. Homeownership in Salt Lake City became even more affordable over the 26-year period — and the case appears the same for many of the largest US metros.”
“Only the Denver, Miami, and Portland, Oregon, metro areas dropped in affordability during that time, Lee said.”
“By the end of 2017, a monthly mortgage payment on the median home in the US required just 15.7% of the typical household income, according to a report by Trulia’s parent company Zillow. Back in the late 1980s and 1990s, a mortgage payment took up 21% of the typical American’s income.”
Granted, coming up with a down payment on a house these days is no easy task.

Effect of interest rate rises are starting to bite.

CNBC – Mortgage refinances fall to decade low – Diana Olick 3/14

“Interest rates for home loans have risen each week this year, so each week homeowners have had less incentive refinance their mortgages.”
“Higher interest rates caused applications to refinance a home loan to fall 2% for the week and 18% from a year ago, when rates were lower. The refinance share of all mortgage applications fell to 40%, the lowest since 2008.”
“Housing is more expensive today than it has been in a decade, and a decade ago credit was a lot easier to get. The average monthly mortgage payment is now up nearly 13% from a year ago, according to Realtor.com — a combination of higher home prices and higher interest rates.”

Economist – Asian and European cities compete for the title of most expensive city – The Data Team 3/15

“Singapore remains the most expensive city in the world for the fifth year running, according to the latest findings of the Worldwide Cost of Living Survey from The Economist Intelligence Unit.”

FT – WeWork is ‘victim of own success’ as office rivals gather – Aime Williams 3/12

“A wave of lease purchases by flexible workspace providers is driving commercial demand in leading cities.”

Honolulu Star Advertiser – Mayor signs bill temporarily banning permits for new ‘monster houses’ – Gordon Y.K. Pang 3/13

“Honolulu Mayor Kirk Caldwell signed into law today a bill imposing a moratorium of up to two years on building permits for ‘monster’ houses, giving the city Department of Planning and Permitting time to come up with permanent rules to deal with the growing phenomenon.”
“DPP will, for the most part, not approve building permit applications during the moratorium for houses that cover more than seven-tenths of a lot under Bill 110 (2017). For example, a 5,000-square-foot lot could not have a living space that’s 3,500 square feet or larger.”
Another instance of a market where housing prices have gone well beyond what local incomes can support. As a result, people come up with ‘work-arounds’ which tend to overburden the local infrastructure and upset neighborhoods, resulting in blunt regulatory reaction. Honolulu is not unique to this problem.

WSJ – The Next Housing Crisis: A Historic Shortage of New Homes – Laura Kusisto 3/18

“America is facing a new housing crisis. A decade after an epic construction binge, fewer homes are being built per household than at almost any time in U.S. history.“
“Home construction per household a decade after the bust remains near the lowest level in 60 years of record-keeping, according to the Federal Reserve Bank of Kansas City.”
“What makes the slump puzzling is that by most other measures, the American economy is booming. Jobs are plentiful, wages are on the rise and the stock market is near record highs. Millennials, the largest generation since the baby boomers, are aging into home ownership.”
“A combination of tightened housing regulations, a lack of construction labor and a land shortage in highly prized areas is driving the crisis, according to industry experts.”
“Even during the deep recession of the mid-1970s and the downturn in the early 2000s, builders put up significantly more homes per U.S. household than they are constructing now, in the ninth year of an economic expansion. Only at the bottom of the 1981 and 1991 economic downturns were per-household construction levels near what they are now, according to Jordan Rappaport, an economist at the Kansas City Fed. He says the only period when the U.S. might have built fewer homes by population was during World War II.”
“The National Association of Home Builders estimates builders will start fewer than 900,000 new homes in 2018, less than the roughly 1.3 million homes needed to keep up with population growth. The overall inventory of new and existing homes for sale hit its lowest level on record in the fourth quarter of 2017, at 1.48 million, according to the National Association of Realtors.”
“That, in turn, is pushing up prices at what economists say is an unsustainable pace. The S&P CoreLogic Case-Shiller National Home Price Index rose 6.3% in 2017. That was roughly twice the rate of income growth and three times the rate of inflation.”
“Builders cite numerous factors contributing to the construction slump. A decades long push for young people to go to college has driven down trade-school enrollment, depriving builders of skilled labor. Declining numbers of immigrant construction workers have sapped builders of unskilled labor.”
“The construction workforce in the U.S. declined to 10.5 million in 2016, from 10.6 million in 2010, when the real-estate market was near bottom, according to an analysis of U.S. Census data by Issi Romem, an economist at BuildZoom, a startup that tracks construction data for building contractors.”
“Nationwide, membership in the National Association of Home Builders peaked at 240,000 in 2007, then dropped to 140,000 in 2012, where it has remained throughout the recovery.”
“Builders in far-flung exurbs are encountering stiffer resistance from young buyers even as prices ratchet higher for land closer to cities. Economists say that in many large metropolitan areas, suburbanization might simply have reached its limits, as potential buyers increasingly reject long commutes. During the 1950s, buying a home in a new suburb, where land was plentiful and cheap, often meant driving half an hour to a job in the city. Today, commutes from new developments can be several times that long.”
“’There’s a tremendous mismatch between the places where people want to live and the places where it’s easiest to build,’ says Edward Glaeser, a professor of economics at Harvard University who studies constraints on housing supply.”
“But building remains below historical averages, and economists say it is unlikely to return to those levels before the next recession.”
“’It’s hard for me to see on single-family how you can build your way out of this,’ Mr. Rappaport says. ‘Even with these heroic efforts’ to overcome barriers to building new housing, he says, there is little chance ‘that you’re going to get a new stream of single-family homes that can relieve demand.’”
“Coastal cities such as San Francisco, Los Angeles, New York and Boston have taken criticism for their restrictive building codes, which make it more difficult to create enough housing to keep up with population growth.”
“Even metropolitan areas with more permissive approaches to building are lagging behind their historical construction levels. Housing permits in Memphis, Tenn., were 44% below their historical average in 2017, according to the latest Census figures analyzed by real-estate data firm Trulia, while permits in the Minneapolis metropolitan area were 16% below average.”

Finance

FT – Private equity groups are calling the shots – Javier Espinoza 3/14

“In business, the mantra goes, the customer is always right and should get the best deal.”
“The opposite is happening in private equity where investors, including large pension funds, endowments, sovereign wealth funds and family money, face unfavorable fund terms and, in all likelihood, lower returns.”
“Private equity firms are clearly calling the shots and that is illustrated by the record amount of money they are turning away.”
“Huge institutional investors have so much money burning a hole in their pockets (Singapore’s GIC alone has $100bn of assets under management) they are under enormous pressure to find a home for this cash somewhere.”
“Hence their willingness to commit their cash to funds even if managers cut or reduce the so-called hurdle rate, which is the return that is guaranteed before a buyout group can claim a share of the profits. The industry standard is a preferred return of 8% on deals.”
“Advent International, the Boston and London-based group, raised eyebrows in 2016 when it announced it was closing a mega $13bn buyout fund without offering minimum returns to its investors. Last year, CVC, the former owner of F1, also said it was cutting its hurdle rate from 8% to 6%. The buyout firm also scrapped early-bird discounts given to new investors.”
“Rather than take their money and run from unfavorable terms, investors have doubled down on these private equity funds, which raised record amounts of cash in their fastest time ever. Advent had set out to raise $12bn and received more than $20bn of interest from investors. CVC raised €16bn but closed the door on billions more because demand was close to €30bn.”
“Rubbing salt into the wound of poorer terms, private equity managers are also warning them that returns should come down.”
“’The investors have accepted the idea of lower returns as OK,’ said the head of a private equity group. ‘It used to be that investors would earn 20% net internal rate of returns. Now they are happy with 14% or 15% net internal rate of returns.’”

Cryptocurrency / ICOs

Visual Capitalist – The Rising Problem of Crypto Theft, and How to Protect Yourself – Jeff Desjardins 3/20

Tech

WSJ – The Battery Boost We’ve Been Waiting for Is Only a Few Years Out – Christopher Mims 3/18

Health / Medicine

NYT – How to Stop Eating Sugar – David Leonhardt 3/18

China

Bloomberg – Xi Gives Stark Taiwan Warning in Hands-Off Message to Trump – Keith Zhai, Peter Martin and Dandan Li 3/20

NYT – Hard-Charging Chinese Energy Tycoon Falls From Xi Government’s Graces – Alexandra Stevenson 3/14

The tycoon: Ye Jianming. The company: CEFC China Energy.

India

Bloomberg Gadfly – Ambani’s Jio Triple Play Deserves to Upend This Cozy Club – Andy Mukherjee 3/20

Russia

NYT – Russian Election: Videos Show Possible Fraud – Camilla Schick 3/20

Did Putin really need the help?…

March 20, 2018March 19, 2018

March 20, 2018

Perspective

NYT – Extensive Data Shows Punishing Reach of Racism for Black Boys – Emily Badger, Claire Cain Miller, Adam Pearce and Kevin Quealy 3/19

Check the link for some very insightful interactive graphics.

“Black boys raised in America, even in the wealthiest families and living in some of the most well-to-do neighborhoods, still earn less in adulthood than white boys with similar backgrounds, according to a sweeping new study that traced the lives of millions of children.”
“White boys who grow up rich are likely to remain that way. Black boys raised at the top, however, are more likely to become poor than to stay wealthy in their own adult households.”
“Most white boys raised in wealthy families will stay rich or upper middle class as adults, but black boys raised in similarly rich households will not.”

WSJ – Daily Shot: Pew – How Millennials today compare with their grandparents 50 years ago – Richard Fry, Ruth Igielnik and Eileen Patten 3/16

Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense – Accidental Career Guidance – Ben Carlson 3/18

Fortune – Mapping The Best (100) Companies 3/1

Interactive map

FT – Italian election results expose eurozone inadequacy – Martin Wolf 3/13

“Until prosperity is better distributed, Europe will remain vulnerable to upheaval.”

WSJ – A Decade After Bear’s Collapse, the Seeds of Instability Are Germinating Again – Greg Ip 3/14

“…Hyun Song Shin, research chief at the Bank for International Settlements, warned in a 2014 speech against the tendency to ‘focus on known past weaknesses rather than asking where the new dangers are.’ Banks may be stronger than a decade ago, but the financial system hasn’t returned to its pre-1980 repressed state.”
“Mr. Shin pointed out that bond markets are growing at the expense of banks in supplying credit, enabling business and government debt loads in many countries to surpass their pre-crisis peaks. Emerging markets have borrowed heavily in dollars, which leaves them vulnerable should the dollar’s value rise sharply. Before the crisis, 80% of investment-grade corporate debt world-wide yielded more than 4%; as of last October, less than 5% did, according to the International Monetary Fund.“
“Total U.S. debt, at around 250% of GDP, still stands at crisis-era peaks while debt levels in China have caught up and passed the U.S., according to the BIS. U.S. companies’ debts had reached 34% of assets by the end of 2016, the highest at least since 2000. Debt-servicing burdens haven’t risen commensurately thanks to low inflation and low rates, but they have begun climbing. More than $1 trillion a year still flows into emerging markets each year, according to the Institute of International Finance.”
“This tells us little about when or where a crisis will happen or what may trigger it. Crises surprise because they usually start with an assumption so sensible that everyone acts on it, planting the seeds of its own undoing: in 1982 that countries like Mexico don’t default; in 1997 that Asia’s fixed exchange rates wouldn’t break; in 2007 that housing prices never declined nationwide; and in 2011 that euro members wouldn’t default. James Bianco, who runs his own financial research firm in Chicago, speculates that the equivalent today might be, ‘We will never see higher inflation or higher growth.’ If either in fact occurs, the low interest rates that have raised household stock and property wealth to an all-time high relative to disposable income won’t be sustainable.”
“Mr. Rogoff (Kenneth Rogoff, Harvard University economist) concurs: ‘It’s much harder to get a crisis when you can borrow for virtually nothing and keep rolling it over.’ A 1.5 to 2 percentage point increase in real interest rates, which he isn’t forecasting, would be small by historical standards but could potentially make the debts of Italy or Portugal unsustainable.”
“Central banks know this, of course, which is one reason they are wary of raising interest rates too quickly—while nervous that if they raise them too slowly, the problem will get worse.”

Markets / Economy

Fortune – These Are the Countries That Have Grown the Most in the Last Year – Nicolas Rapp and Anne Vandermey 2/23

Fortune – Here Are the 26 Big U.S. Companies With the Most Cash Stashed Overseas – Nicolas Rapp and Brian O’Keefe 2/22

Wolf Street – US Gross National Debt Spikes $1.2 Trillion in 6 Months, Hits $21 Trillion – Rolf Richter 3/16

Energy

FT – Saudi Arabia’s existential crisis returns as US shale booms anew – Anjli Raval 3/18

“Nearly 4m barrels a day of US crude is expected to hit export markets by the mid-2020s, up from just over 1m b/d in 2017, meaning it will ship similar levels to Iraq and Canada, according to consultancy Wood Mackenzie. The industry is debating whether the world will be able to absorb these volumes and how global crude flows will redirect.”
“China surpassed the UK and the Netherlands to become the second-largest destination for US crude oil exports in 2017, accounting for a fifth of the 527,000 b/d total year-over-year increase in foreign sales. Chinese refiners say the trend will continue as Beijing seeks to partially address US president Donald Trump’s complaints about the trade deficit between the two countries.”
“The International Energy Agency forecasts that the US will cover most of the world’s demand growth over the next three years. As US supply surges, the world’s need for Opec’s crude is forecast to fall below current production rates in 2019 and 2020.”

Finance

WSJ – Daily Shot: US 3-Month LIBOR 3/18

“The US 3-month LIBOR reached 2.2% for the first time in nine years.”

Cryptocurrency / ICOs

ars Technica – Ether plunges after SEC says “dozens” of ICO investigations underway – Timothy B. Lee 3/18

“The price of ether, the cryptocurrency of the Ethereum network, has fallen below $500 for the first time this year. The decline comes days after a senior official from the Securities and Exchange Commission acknowledged that the agency had ‘dozens’ of open investigations into initial coin offerings. The price of ether has fallen 19 percent in the last 24 hours, from $580 to $470.”

WSJ – Daily Shot: Bitcoin 3/18

Automotive

FT – Carmakers take electric fight to the factory floor – Patrick McGee 3/18

China

FT – Africa eats up lion’s share of Chinese lending – James Kynge 3/10

“Africa attracted more Chinese state lending for energy infrastructure than any other region last year, highlighting Beijing’s view of the continent’s growing economic and strategic importance.”
“A study by Boston University academics shows that nearly one-third, or $6.8bn, of the $25.6bn that China’s state-owned development banks lent last year to energy projects worldwide went to African countries. This was ahead of south Asia, with $5.84bn.”
“The loans bring total Chinese energy finance in Africa since 2000 to $34.8bn. While this is well behind the $69bn lent in Europe and Central Asia, the $62bn in Latin America and the $60bn in Asia over the same period, the 2017 data illustrate Africa’s growing importance.”