Month: January 2020

Demographics | Oil & Gas Production

FT – China’s falling birth rate threatens economic growth – Sun Yu 1/19/20

FT – Italy’s collapsing birth rate rings demographic alarm bells – Miles Johnson 1/16/20

WSJ – Daily Shot: eia – US Shale Production by Region 1/20/20

WSJ – Daily Shot: Gas Production by Country 1/20/20

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Real Estate Relative to Other Assets | Sand Mining

Economist – The great global housing folly – Daily Charts 1/17/20

Economist – Asia’s hunger for sand is harmful to farming and the environment 1/16/20

There has probably never been a better time to be in the sand business. The world uses nearly 50bn tons of sand and gravel a year—almost twice as much as a decade ago. No other natural resource is extracted and traded on such an epic scale, bar water.

Demand is greatest in Asia, where cities are growing fast (sand is the biggest ingredient in cement, asphalt and glass). China got through more cement between 2011 and 2013 than America did in the entire 20th century. Since the 1960s Singapore—the world’s largest importer of sand—has expanded its territory by almost a quarter, mainly by dumping it into the sea. The OECD thinks the construction industry’s demand for sand and gravel will double over the next 40 years. Little wonder then that the price of sand is rocketing. In Vietnam in 2017 it quadrupled in just one year.

In the popular imagination, sand is synonymous with limitlessness. In reality it is a scarce commodity, for which builders are now scrabbling. Not just any old grains will do. The United Arab Emirates is carpeted in dunes, but imports sand nonetheless because the kind buffeted by desert winds is too fine to be made into cement. Sand shaped by water is coarser and so binds better. Extraction from coastlines and rivers is therefore surging. But according to the United Nations Environment Program (UNEP), Asians are scooping up sand faster than it can naturally replenish itself. In Indonesia some two dozen small islands have vanished since 2005. Vietnam expects to run out of sand this year.

All this has an environmental cost. Removing sand from riverbeds deprives fish of places to live, feed and spawn. It is thought to have contributed to the extinction of the Yangzi river dolphin. Moreover, according to WWF, a conservation group, as much as 90% of the sediment that once flowed through the Mekong, Yangzi and Ganges rivers is trapped behind dams or purloined by miners, thereby robbing their deltas both of the nutrients that make them fecund and of the replenishment that counters coastal erosion. As sea levels rise with climate change, saltwater is surging up rivers in Australia, Cambodia, Sri Lanka and Vietnam, among other places, and crop yields are falling in the areas affected. Vietnam’s agriculture ministry has warned that seawater may travel as far as 110km up the Mekong this winter. The last time that happened, in 2016, 1,600 square kilometers of land were ruined, resulting in losses of $237m. Locals have already reported seeing dead fish floating on the water.

Curbing sand-mining is difficult because so much of it is unregulated. Only about two-fifths of the sand extracted worldwide every year is thought to be traded legally, according to the Global Initiative Against Transnational Organized Crime. In Shanghai miners on the Yangzi evade the authorities by hacking transponders, which broadcast the positions of ships, and cloning their co-ordinates. It is preferable, of course, to co-opt officials. Ministers in several state governments in India have been accused of abetting or protecting illegal sand-mining.

Scientists are experimenting with alternatives to concrete and cement. Architects are trying to find ways to use such materials more sparingly. Even the odd government is taking action. In 2018, Maharashtra passed regulations requiring contractors to use plastic waste as filler when building or repairing roads. Singapore is creating a new patch of land by draining it of water rather than piling it with sand. Kiran Pereira of SandStories.org, which promotes awareness of the issue, says “there are plenty of solutions” if only governments would find the will to implement them. Time to pull heads from the sand.

Real Estate Ghost Towns in India

WSJ – India’s ‘Ghost Towns’ Saddle Middle Class With Debt – and Broken Dreams – Eric Bellman

Half a million unfinished apartments are stuck in financial limbo in India, dashing the dreams and the spending of a middle class that was supposed to be spearheading India’s economic rise.

Wish Town, a development in the New Delhi suburb of Noida, encapsulates the plight of middle-class Indians who sank their life savings into the promise of life in a green and neatly ordered suburb. Hundreds of empty townhouses and apartment towers, half-built and stained by mold from monsoon rains, stare down at what used to be farm lands.

Construction stopped in 2016 when the developer couldn’t pay its debt. Only about half of the 40,000 apartments that were to house close to 200,000 people have been finished and handed over to their buyers. Those who have moved in complain that the golf club, gyms, pools, retail spaces and restaurants advertised by its developer, Jaypee Group have largely yet to be built.

Stuck home buyers in the hundreds of “ghost towns” now dotting the outlying areas of New Delhi, Mumbai and other urban centers face a situation that some here liken to America’s much larger subprime crisis. Builders have run out of money and can’t get new loans. People who put down payments have waited through years of delays and court cases and still may not ever get their homes or refunds.

Many have cut back spending on everything from cars and clothes to flights and eating out. This has contributed to the recent drop in consumption behind India’s economic slowdown, with the government predicting growth will fall to less than 5% in the fiscal year ending March 31, its lowest in more than 10 years. Deborah Tan, an assistant vice president at Moody’s Investors Service, said Indian consumers have given up hoping for the economy to turn around and are tightening their belts—one reason the rating firm downgraded its outlook for India to negative from stable in November.

Delivering on the hopes of the middle class has emerged as one of the biggest challenges for Prime Minister Narendra Modi. The middle class, which most analysts say could be more than 100 million people, has backed him strongly in two elections, and he regularly mentions the plight of stuck home buyers in his speeches. New Delhi last month announced a $3.5 billion fund to jump start the viable projects, although many economists say the amount isn’t enough.

The housing crisis reflects the sea change that has taken place in India’s financial industry amid liberalization efforts to meet the needs of a fast-growing economy. Two decades ago it was close to impossible for most people to get a mortgage, and red-tape made it difficult and unprofitable for developers to attempt large projects. Even the best-paid usually had to save until near retirement before they could afford a home.

When market liberalizations in the early 2000s made it easier to raise money on the stock market and with loans, as well as to obtain home mortgages, buyers and builders went overboard. Across the country there was an explosion in new apartment construction. Complexes with a total of five million apartments and villas were launched between 2009 and 2019 according to PropEquity, a real-estate research company. Real-estate loans at India’s banks, as well as at nonbanking finance companies known as shadow banks, quadrupled to more than $70 billion.

The developers, though, quickly ran into problems getting government clearances and finding enough workers to build their projects. Apartments that were supposed to be built in three years ended up taking five years or more. Then, funding for projects dried up, as banks and shadow banks cut back amid growing piles of soured real-estate and infrastructure loans. This forced more delays and even the mothballing of many projects.

More than 450,000 apartments have been delayed for more than three years, according to a recent government survey. The value of all the delayed projects is more than $50 billion, 10 times the number five years ago and still half of what it will be in the next few years, according to PropEquity.

Analysts say the government may need to create its own bad bank specifically for real estate to take the bankrupt projects off the lenders’ books. New Delhi has already merged struggling state banks into bigger banks, while the central bank cut interest rates five times in 2019 and eased restrictions on healthy lenders.

Samir Jasuja, founder of PropEquity, said the industry needs government money and guarantees as well as guidelines about which projects get saved and how. Without government-backed funds to rescue the most viable projects, the problem will only spread, he said. “This hole is going to get bigger and bigger and more money is going to go after bad projects,” he said.

China’s Working Age Population | Passive Funds – AUM | Luxury Apartments In Full Swing

WSJ – Daily Shot: Caixin – China’s Working-Age Population 1/15/20

FT – Index funds break through $10tn-in-assets mark amid active exodus – Robin Wigglesworth and Alex Janiaud 1/7/20

WSJ – Aiming at Wealthy Renters, Developers Build More Luxury Apartments Than They Have in Decades – Will Parker 1/15/20

Builders are on track to finish more new apartments in 2020 than in any year since the 1980s, a new study shows, with developers across the U.S. chasing after the more affluent tenants.

An additional 371,000 new rental units are expected to hit the U.S. market this year, which is a 50% increase over the number of new units completed in 2019, according to an analysis from real-estate analytics firm RealPage.

State and local governments are grappling with how to create more rentals to combat the rising cost of housing for middle- and lower-income families. But as much as 80% of new supply this year will come from luxury developments, or what the real-estate industry calls “Class A” properties, said RealPage chief economist Greg Willett.

This year’s surge signals that projects planned around the 2015 peak of the rental market are reaching completion.

The lack of single-family houses available for sale, and the rising price to buy them, has been one major boost to the luxury rental market, Mr. Bahrami said.

And although rental supply this year is the highest in more than 30 years, the construction of single-family homes for sale is well below historic norms, sending more people in search of apartments, said Calvin Schnure, chief economist for the National Association of Real Estate Investment Trusts, a trade group.

Lingering Price Stagnation

What the Fed Fears: People Who Can’t Remember Rising Prices – Megumi Fujikawa 1/13/20

Figuring out the public’s expectations of future inflation—and trying to influence them—is core to any central banker’s work. Yet Japan shows how hard that becomes when many people barely grasp the concept of steadily rising prices.

“Those who were born in the 1980s and 1990s almost have no experience of inflation. So even if they were told inflation was coming, they didn’t believe it,” said Tsutomu Watanabe, a Tokyo University professor and former central banker.

A 20-year-old in Japan today has experienced average inflation of 0.1% over his or her lifetime. No wonder Bank of Japan Gov. Haruhiko Kuroda’s repeated vows to reach 2% inflation haven’t worked out.

The Federal Reserve, like the Bank of Japan, seeks 2% inflation because it sees that level as consistent with a healthy economy. U.S. inflation has held close to but below the target for years, and Fed officials are reviewing their inflation targeting framework to avoid succumbing to the low-inflation trap that has bedeviled Japan. Among the options under consideration are approaches that would more explicitly allow or even encourage inflation above 2% in hopes of lifting inflation expectations.

The problem, central bankers believe, is that low-inflation expectations can be self-fulfilling if they cause consumers to balk at higher prices and businesses to refrain from raising prices and wages.

“Inflation that runs persistently below our objective can lead to an unhealthy dynamic in which longer-term inflation expectations drift down, pulling actual inflation even lower,” Fed Chairman Jerome Powell said at a Dec. 11 news conference.

In recent years, Mr. Kuroda has pointed to research suggesting inflation expectations are adaptive: People predict future prices based on what they have seen in recent years. In practice, that means Japanese consumers have accustomed themselves to seeing everyday goods at low prices and punish any retailer that tries to raise them.

Even consumers old enough to remember inflation might not share a central banker’s 21st century perspective on it. To Messrs. Powell and Kuroda, achieving modest, steady inflation of around 2% keeps a nation away from a negative spiral of falling prices, declining wages and weak demand. But to the average person, rising prices sound like a bad deal.

Remittances | Personal Income Growth by State | Income Less Expenditures by Income Percentile

WSJ – Daily Shot: statista – Top Remittance Destinations 2018 1/10/20

WSJ – Daily Shot: BEA – US Changes in Personal Income 1/10/20

Big Picture_US Households: Half Spend More Than They Earn 1/10/20

US Net Domestic Migration Patterns

Bloomberg – Goodbye, New York, California and Illinois. Hello … Where? – Justin Fox 1/9/20

New York, California and Illinois have been hemorrhaging residents. Almost 3.2 million more people left those states for elsewhere in the U.S. than arrived from other states, from 2010 through 2019, according to population estimates released last week by the Census Bureau. Nine other states saw net out-migration of more than 100,000 people over that period, but none really came close to the big three.

Thanks to 2 million more births than deaths and 1 million newcomers from other countries, California’s population still grew by about 2 million over this period, a gain that trailed only those of Texas and Florida. New York’s population grew but only slightly, while Illinois lost an estimated 159,751 people between 2010 and 2019. Yes, these are all big states, but New York and Illinois ranked second and third in net domestic migration as percentage of 2010 population, behind only Alaska (California ranked 13th).

Where are all these people going? The Empire Center for Public Policy, a conservative Albany think tank, put together some estimates for New York based on data that the Internal Revenue Service gleans from tax returns… This inspired me (Justin Fox) to do the same for California and Illinois. Here are the Empire Center’s numbers for New York:

Domestic migration statistics are frequently cited as evidence of the failures of blue-state governance, in particular the higher taxes imposed by states that are losing lots of residents. There’s something to that — income-tax-free Florida sure is attracting a lot of affluent people from Illinois and New York, and a recent study of high-income California taxpayers concluded that a 2012 income tax increase there did in fact drive some away. But California, Illinois and New York have all experienced bigger per capita personal income gains than the nation as a whole since the beginning of 2010, and all saw taxpayers with incomes below $50,000 overrepresented among the leavers from 2011 through 2018. These departures may indicate failures of governance as well, but it’s a different set of governance failures, presumably related more to housing costs, commutes and job opportunities than taxes per se.

Australian Wildfire in Perspective

WSJ – Daily Shot: statista – Size of Recent Major Wildfires 1/6/20

Perspective on the US Shale Industry in the 2010s | Private Equity is Flush | Online Betting is on the Rise in New Jersey Train Stations

Bloomberg – Shale’s Amazing, World-Changing, Lousy Decade – Liam Denning 12/27/19

Bloomberg – Private Equity Is Starting 2020 With More Cash Than Ever Before – Melissa Karsh and Benjamin Robertson 1/1/20

Bloomberg – New Jersey Train Stations Become Draw for New York Gamblers – Christopher Palmeri 1/6/20

New Jersey has seen a surge in sports bets since the state convinced the U.S. Supreme Court to overturn a ban on such wagers in 2018. More than $4 billion in bets were placed there in 2019. But rather than going to casinos or racetracks, gamblers are making more than 80% of their bets online, often using smartphones near train stations just outside New York City. They’ve made the state the early leader.

Tobacco Users on the Decline | 2020 US Federal & State Min. Wage Rates | Most Common Job Types by County | 2019 Market Returns by Asset Class

Bloomberg: WHO – Number of Male & Female Tobacco Users 12/18/19

WSJ – Daily Shot: the Balance – 2020 Minimum Wage by US State 1/1/20

WSJ – Daily Shot: Tableau – Most Common Job Types by American County 1/2/20

WSJ – Daily Shot: Charles Schwab – 2019 Stock Relative Stock Returns 1/2/20