July 17, 2018

Worthy Insights / Opinion Pieces / Advice

NYT – Tracking the President’s Visits to Trump Properties – Karen Yourish and Troy Griggs 7/16

Markets / Economy

Bloomberg – Giant Pork Pile Awaits Americans as Trade Wars Risk Exports – Megan Durisin and Justina Vasquez 7/13

  • “American production is poised to reach an all-time high this year, and output is forecast to surge again in 2019. The supply boom comes as tariffs from China and Mexico threaten to curb export demand, leaving Americans with a mountain of cheap meat.”
  • “Total U.S. meat production is forecast at a record in 2018 and is set to climb again next year, the USDA estimates. Cash hogs may average about 42 cents a pound in 2019, down 7.7% from this year, the department predicts.”

NYT – After Storm, Foreclosures in Puerto Rico Stopped. They’re Starting Again. – Matthew Goldstein 7/15

  • Bottom line, the imposed foreclosure moratoriums are ending.

FT – Sovereign wealth funds abandon active managers – Chris Flood 7/15

  • “More problems lie ahead as SWFs look to switch more equity holdings.”

WSJ – Daily Shot: China Beige Book – China Construction Growth YoY Change 7/16

  • “Here is the reason steel rebar futures have been rallying.”

Real Estate

FT – US bankers warn on commercial property risks – Alistair Gray 7/15

  • “US bankers have warned about mounting risks in commercial real estate, with figures showing they are putting the brakes on loans to buyers of office buildings, hotels and shopping malls.”
  • “JPMorgan’s latest quarterly results published on Friday showed its commercial real estate business had its slowest period for at least 10 quarters, with average balances flat from the previous three months.”
  • “Wells Fargo’s CRE loan book shrank by $2.5bn in the second quarter because of declines in construction funding and mortgages on existing properties. In contrast, its non-property commercial portfolio expanded by $1.9bn.”
  • “Default rates remain low but bankers are concerned that CRE loan terms are too loose, especially as the Federal Reserve’s interest rate rises push up their own funding costs.”
  • “Tim Sloan, Wells Fargo’s chief executive, said CRE underwriting standards had been deteriorating ‘for some time’. He added, though, that the slippage was ‘nowhere near what we saw in 2006 and 07’, before the financial crisis.”

Energy

FT – Peak oil demand forecast for 2036 – David Sheppard 7/15

  • “One of the world’s most influential oil consultancies has forecast that global oil demand will peak within 20 years, as a ‘tectonic’ shift in the transport sector towards electric cars and autonomous vehicles gathers pace.”
  • “’A lot of our clients recognize that peak demand is real,’ said Ed Rawle, Wood Mackenzie’s head of crude oil research. ‘It’s just a question of when it arrives.’”
  • “Mr. Rawl at Wood Mackenzie said the consultancy’s thinking on peak demand was driven by a renewed assessment of the impact of not just electric cars but growing signs that autonomous electric vehicles will play a major role in the future of transport.”
  • “In the next 10 years the biggest impact on slowing global oil demand growth — which is expected to hit 100m barrels a day for the first time this year — would be fuel efficiency, Mr. Rawl said.”
  • “The improvement in fuel efficiency standards in conventional cars over the past decade has already had an effect, while the coming years should see the retirement of many older, gas-guzzling cars, leaving a less fuel-hungry fleet on the road.”
  • “Petrol demand is expected to be the first component of oil demand to peak around 2030 as a result.”
  • “Seeing peak oil demand on the distant horizon, does not, however, mean lower prices in the short term, Mr. Rawl said.”

Finance

WSJ – Why a $1 Trillion Mountain of Private-Equity Cash Matters – Ben Eisen 7/10

China

FT – Tencent and Alipay set to lose $1bn in revenue from payment rules – Gabriel Wildau 7/15

  • “China’s two mobile payments giants, Alipay and Tencent, are poised to lose around $1bn in combined annual revenue to a new central bank requirement that third-party payment groups hold all customer funds in reserve.” 
  • “Chinese mobile payment transactions reached Rmb109tn ($16tn) last year, according to research firm Analysys Mason, as consumers switched to smartphones from cash for supermarkets, taxis, and payments to friends. The platforms are also increasingly used to purchase mutual funds, peer-to-peer loans and other wealth management products.” 
  • “Ant Financial’s Alipay and Tencent’s WeChat Pay dominate the industry, with market shares of 54% and 39% respectively in the first quarter. Ant Financial is the finance affiliate of Alibaba.” 
  • “Together the two groups control hundreds of billions of renminbi in customer funds that accumulate on their platforms when users receive payments but do not immediately transfer the funds to a bank account or other investment.” 
  • “Previously, third-party payment groups were permitted to invest customer funds, much as banks use deposits to make loans and other investments, even though unlike banks, the payment groups pay no interest to users.” 
  • “In January 2017, the People’s Bank of China announced that it was requiring third-party payment groups to keep 20% of customer deposits in a single, dedicated custodial account at a commercial bank and specified that this account would pay no interest.”
  • “In April, the ratio was increased to 50%, and last month, the central bank announced that it would raise the reserve requirement to 100% by next January. At that point, payment groups will earn zero interest on all customer funds.”
  • “The ostensible reason for the change is to prevent fraud and protect customers.” 
  • “Large players like Alipay and Tencent handled customer funds conservatively, but they were still able to earn significant revenue by depositing funds in interest-bearing accounts at commercial banks. Tencent earned Rmb3.9bn in interest income in 2017, or 1.7% of total revenues, according to its annual report.” 
  • “The PBoC’s balance sheet shows that ‘deposits of non-financial Institutions’ — a category that mainly includes payment companies — increased from nothing in May 2017 to Rmb501bn by the end of May. Before the implementation of reserve requirements, nearly all that money would have been generating interest for Alipay, Tencent, and their smaller rivals.” 
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