Tag: Africa

May 8, 2018

If you were only to read one thing…

HuffPost – America’s Housing Crisis Is Spreading To Smaller Cities – Michael Hobbes 5/5

  • “It’s tempting to look at the housing crisis in Boise as just a miniature version of what’s already happened in the Bay Area and the Pacific Northwest and the Northeastern corridor. But in the last 10 years, the American economy has transformed in ways that are going to make it even harder for smaller cities to respond to growth.”
  • “In 2007, the city of Boise was issuing more than twice as many building permits as it is now. Despite having 125,000 more residents, Boise’s metro area built fewer homes in 2016 than it did in 2004.”
  • “The reason, says Gary Hanes, a retired HUD administrator based in Boise, is that the recession wiped out the city’s construction sector. Between 2008 and 2012, Boise home prices fell by 40%. With homebuilding stalled, thousands of construction workers took other jobs or left for North Dakota or Alaska. By 2012, once all the low-cost and foreclosed homes had been scooped up and the city needed new housing again, there was no one left to build it.”
  • “This isn’t just a Boise problem. Construction workers, even in high-paid jobs and booming cities, are in short supply. Plus, thanks to increasing international demand, prices for timber, steel and concrete are going up nationwide.”
  • “The higher costs of materials, financing and labor, combined with the years-long lag in homebuilding, have made construction unbearably expensive. Fred Cornforth, the CEO of the CDI/Idaho Development and Housing Organization, builds affordable housing in 17 states. He tells me that his last project in Boise cost around $155,000 per apartment ― cheaper than Seattle, where he also develops properties, but not by as much as you’d think.”
  • “This, Cornforth says, is the fundamental challenge of the housing crisis in Boise and everywhere else: The only way make prices fall is to overbuild. You need vacancy rates of 8% or more before rents start to come down. But the backlog is so great, and the costs of building are so high, that it’s impossible even to meet the current demand. Every year, he says, as the backlog grows, the costs go up and the challenge of meeting the need gets worse.”
  • “Ultimately, the housing crisis is not about housing. It is about the inability of American cities to grow.”
  • “’It’s hard to acknowledge change,’ says Mike Kazmierski, the president of the Economic Development Authority of Western Nevada. He’s been watching Reno, another medium-size boomtown, play out the same debates as Boise for over six years now. ‘If you say your city is going to grow, that means you need another fire station, more schools, more staff. Cities don’t have the budgets for that, and asking for it means raising taxes. The pushback is, ‘We don’t want to pay for that growth. Let them pay for it when they get here.’”
  • “This is where Boise starts to look depressingly familiar. In the last few years, as the city’s growth has become more visible, NIMBY groups have taken over the political conversation. Of the 21 speakers at a town hall meeting last month, only two said they welcomed more growth. Signs reading ‘OVERCROWDING IS NOT SUSTAINABLE’ are showing up in front yards. Some local residents, taking a page from the San Francisco playbook, are trying to get their neighborhood classified as a ‘conservation district‘ to block new buildings from going in.”
  • “Some of the complaints have merit ― it’s hard not to be sympathetic to residents asking for sidewalks on their streets or more frequent bus service ― but many are simply pleas for the growth itself to stop. A comment on the Facebook page for Vanishing Boise, one of the local anti-development groups, is emblematic of the argument: ‘Why are they coming in the first place?????’”
  • “As in other cities, this dynamic reveals a fundamental weakness in the American political system: Opposition to growth comes from homeowners and voters, entrenched interests who already have the ear of local politicians. Supporters of growth, the beneficiaries of all the new development, haven’t even moved here yet.”
  • “…most local advocacy groups are making the same argument San Francisco homeowners have made for decades: If we don’t build it, they won’t come.”

Perspective

FactsMaps – US States by Population Growth Rate 1950-2016

WSJ – Daily Shot: OECD – Levels of Income Inequality 5/7

Worthy Insights / Opinion Pieces / Advice

FT – Access to energy is an essential step in African development – Nick Butler 5/6

  • “Investment in infrastructure can unlock the continent’s potential but is far too low.”

FT – Fight the Faangs, not China – Rana Foroohar 5/6

  • “The Trump administration must break the power of big tech.”

NYT – Save Barnes & Noble! – David Leonhardt 5/6

WSJ – Xiaomi’s Valuation Isn’t Anywhere Near $100 Billion – Jacky Wong 5/3

WSJ – Tesla’s Numbers Are Even More Dramatic Than Its CEO – Charley Grant 5/5

WSJ – Why It’s Not Crazy to Buy a Mall Giant in the Age of Amazon – Stephen Wilmot 5/6

Real Estate

MarketWatch – With no letup in home prices, the California exodus surges – Andrea Riquier 5/7

  • “Over a million more people moved out of California from 2006 to 2016 than moved in, according to a new report, due mainly to the high cost of housing that hits lower-income people the hardest.”
  • “There are many reasons for the housing crunch, but the lack of new construction may be the most significant. According to the report, from 2008 to 2017, an average of 24.7 new housing permits were filed for every 100 new residents in California. That’s well below the national average of 43.1 permits per 100 people.”
  • “If this trend persists, the researchers argued, analysts forecast the state will be about 3 million homes short by 2025.”
  • “California homeowners spend an average of 21.9% of their income on housing costs, the 49th worst in the nation, while renters spend 32.8%, the 48th worst. The median rent statewide in 2016 was $1,375, which is 40.2% higher than the national average. And the median home price was — wait for it — more than double that of the national average.”
  • “One coping strategy: California residents are more likely to double up. Nearly 14% of renter households had more than one person per bedroom, the highest reading for this category in the nation.”
  • “Coping can also mean leaving.”
  • “The Next 10 and Beacon Economics researchers used Census data to track migration patterns by demographic characteristics. More than 20% of the 1.1 million people who moved in the decade they tracked did so in 2006, at the height of the housing bubble, when prices were, as they write, ‘sky-high’.”
  • “As the housing market imploded and prices came back to earth, migration out of the state slowed. But as prices recovered, ‘out-migration’ has not only picked up steam, it’s accelerated.”
  • “Those migration patterns are shaped by socioeconomics. Most people leaving the state earn less than $30,000 per year, even as those who can afford higher housing costs are still arriving. As the report noted, California was also a net importer of highly skilled professionals from the information, professional and technical services, and arts and entertainment industries. On the other hand, California saw the largest exodus of workers in accommodation, construction, manufacturing and retail trade industries.”

MarketWatch – Americans haven’t been this optimistic about house prices since just before the crash – Quentin Fottrell 5/7

  • “House prices are soaring and, despite warnings from some analysts, most Americans believe they will continue to soar.”
  • “A majority of U.S. adults (64%) continue to believe home prices in their local area will increase over the next year, a survey released Monday by polling firm Gallup concluded. That’s up nine percentage points over the past two years and is the highest percentage since before the housing market crash and Great Recession in the mid-2000s.”

Environment / Science

WP – Hawaii’s silent danger: Volcanic smog, otherwise known as ‘vog’ – Allyson Chiu 5/7

South America

WSJ – Daily Shot: Argentina Central Bank 7-Day Repo Rate 5/4

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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.” 

New Zealand

FT – Fonterra’s second China foray comes under scrutiny – Jamie Smyth and Tom Hancock 3/7

  • “New Zealand dairy co-operative’s farmers seek answers after Beingmate tie-up sours.”

January 30, 2018

Perspective

statista – Super Bowl LII – Felix Richter 1/26

Worthy Insights / Opinion Pieces / Advice

FT – The dangers of digital democracy – Rana Foroohar 1/28

FT – What Venezuela’s chaos means for the oil market – Nick Butler 1/28

  • “Anyone looking for an explanation of the recent uptick in the oil price towards $70 a barrel need look no further than the unhappy state of Venezuela. Oil production in the country fell 13% in 2017 (against the 2016 average), with the drop accelerating towards the end of the year. In the last three months alone output has fallen by more than 500,000 barrels a day to a 28-year low of just over 1.6m a day.”
  • “On any normal measure, Venezuela should be one of the world’s richest countries. With proven oil reserves of over 300bn barrels and a wealth of other natural resources, the 30m citizens of the Bolivarian Republic should be the beneficiaries of a secure regional market for oil supplies and of the skills accumulated in the industry over the last 80 years.”
  • “Instead, the country is on the verge of bankruptcy. The government is toying with inventing a currency — the petro — securitized against the contents of an oilfield in the Orinoco basin. But the first requirement of cryptocurrencies is trust and there is little or none of that for the government of President Nicolás Maduro. Inflation rate is running at 1,178%, according to unofficial estimates — the government has stopped publishing inflation data.”
  • “The collapse of Venezuela as a viable state has accelerated over the past six months and its effects have begun to hit the country’s core business — the production of oil. The state company PDVSA is deeply in debt. Including bonds, notes and other loans, it owes around $56bn. Schlumberger the international oil services company, took a write down of $938m last month because of bills the country has failed to pay.”
  • “Cuba, once the closest ally of Venezuela’s hard-left leadership, has taken control of PDVSA’s stake in a local refinery to offset unpaid debts. Russia and China have at times propped up the Maduro government but now the limit of generosity seems to be some relief on repayment terms rather than new loans.”
  • “In the absence of regime change there will be no rescue funds from the International Monetary Fund or anyone else. Meanwhile, the opposition, although vocal, lacks any effective power. In these circumstances, the country’s oil production is likely to stay down, and could well fall further during 2018.”
  • “For Venezuela the situation is a deepening tragedy. For the oil market, and Opec in particular, the loss of production from one of the most important producers outside the Middle East is a source of salvation.”

NYT – The Follower Factory – Nicholas Confessore, Gabriel Dance, Richard Harris, and Mark Hansen 1/27

  • “Everyone wants to be popular online. Some even pay for it. Inside social media’s black market.”

Energy

WEF – We’re getting closer to completing the energy transition – Faith Birol 1/18

Environment / Science

FT – The problem with plastic – Clive Cookson 1/23

  • “Every year an estimated 8 million tons of plastic end up in ocean.”

Health / Medicine

NYT – In Kenya, and Across Africa, an Unexpected Epidemic: Obesity – Jeffrey Gettleman 1/27

China

FT – China faces refinancing crunch with $2.7tn of bonds bearing down – Emma Dunkley and Gabriel Wildau 1/28

  • “China’s $4tn bond market faces a refinancing challenge over the next five years as more than half of the outstanding debt matures, heightening concerns over default risk by some borrowers.”

FT – China’s HNA tries to navigate turbulent times – Lucy Hornby 1/28

  • “In the space of just 12 months, Chinese airline-to-finance conglomerate HNA has morphed from a symbol of the ambition and wealth of China Inc into a cautionary tale of corporate indebtedness.”
  • “About $20bn in US dollar-denominated bonds issued by HNA and its subsidiaries are due to mature in 2018 or 2019. The yields on three of those dollar bonds issued by HNA’s main Hong Kong subsidiary have spiked, doubling this month to more than 18%.”
  • “There are also signs of a cash crunch rippling through the group’s complex structure, which includes 16 listed entities and many layers of shell companies and crossholdings. Several have raised debt from Chinese banks and HNA has also turned to high-interest peer-to-peer loans, making its renminbi-denominated debt harder to quantify.”

Japan

Project Syndicate – The Bank of Japan’s Moment of Truth – Takatoshi Ito 1/25

  • “After years of deflation, Japan’s labor market is the tightest it has been in decades and the Bank of Japan is still providing significant stimulus to the economy. But with inflation still well below target, central bankers are finding themselves between a rock and hard place.”

October 12, 2017

Perspective

Business Insider – Trump’s net approval rating has dropped dramatically in every state – Allan Smith 10/10

Brookings – White, still: The American upper middle class – Richard Reeves and Nathan Joo 10/4

Economist – A new study details the wealth hidden in tax havens 10/7

  • “…A new study by Annette Alstadsaeter, Niels Johannesen and Gabriel Zucman, three economists, (using Bank for International Settlements data) concludes that tax havens hoard wealth equivalent to about 10% of global GDP. This average masks big variations. Russian assets worth 50% of GDP are held offshore; countries such as Venezuela, Saudi Arabia and the United Arab Emirates climb into the 60-70% range. Britain and continental Europe come in at 15%, but Scandinavia at only a few per cent.”
  • “One conclusion is that high tax rates, like those in Denmark or Sweden, do not drive people offshore. Rather, higher offshore wealth is correlated with factors such as political and economic instability and an abundance of natural resources.”
  • “Accounting for offshore holdings suggests wealth inequality is even greater than was thought. In Britain, France, and Spain the top 0.01% of households stash 30-40% of their wealth in tax havens. In Russia, most of it goes there. In America, the share of wealth held by the richest 0.01% is as high today as in early 20th-century Europe. Including offshore data increases the wealth share of the super-rich.”
  • “Yet plenty of data are still missing. A few big centers, including Panama and Singapore, still do not disclose these statistics. The BIS data also cover only bank deposits, not the securities in which most offshore wealth is held. Researchers made estimates to plug the gap, but their figures are likely to be conservative.”

Worthy Insights / Opinion Pieces / Advice

NYT – How Israel Caught Russian Hackers Scouring the World for U.S. Secrets – Nicole Perlroth and Scott Shane 10/10

Economist – The bull market in everything – Leaders 10/7

Economist – A deathly silence: After the massacre in Las Vegas, nothing is set to change – Leaders 10/5

Economist – Politicians choosing voters: The Supreme Court ponders whether gerrymandering has gone too far 10/7

Economist – Chiang Kai-shek’s former homes are open to tourists 10/5

Markets / Economy

Economist – From Uber to kinder 10/7

Economist – American public pensions suffer from a gaping hole 10/5

  • “Schools in Pennsylvania ought to be celebrating. The state gave them a $125m budget increase for 2017-18—enough for plenty of extra books and equipment. But John Callahan of the Pennsylvania School Boards Association says all the increase and more will be eaten up by pension costs, which will rise by $164m this year. The same happened in each of the previous five years; cumulatively the shortfall adds up to $586m. The pupil-teacher ratio is higher than in 2010. Nearly 85% of the state’s school boards said pensions were their biggest source of budget pressure.”
  • “A similar squeeze is happening all over America. Sarah Anzia, at the University of California, Berkeley, examined 219 cities between 2005 and 2014 and found that the mean increase in their real pension costs was 69%; higher pension costs in those cities were associated with falls in public-sector employment and capital spending.”
  • “The problem is likely to get worse. Moody’s, a rating agency, puts the total shortfall of American public-sector pension plans at around $4trn. That gap does not have to be closed at once, but it does mean that contributions by employers (and hence taxpayers) will increase even more than they already have (see chart).”
  • “Higher costs are the result of improved longevity, poor investment returns and inadequate past contributions.”
  • As to making plans…
  • “Experts can differ, it seems. But small changes in assumptions can make a huge difference to the amount employers need to contribute. According to the National Association of State Retirement Administrators, cutting the return assumption by a quarter of a percentage point increases the required contribution rate (as a proportion of payroll) by two to three points.”
  • “In consequence, it is in no one’s interest to make more realistic assumptions about future returns. Workers (and their unions) fear it might generate calls for their benefits to be cut; states worry it would require them to raise taxes. Don Boyd, the director of fiscal studies at the Rockefeller Institute of Government, a think-tank, reckons that with a 5% assumed rate of return, states would have to stump up an extra $120bn a year just to tread water—i.e., to fund their pensions without making any progress on closing the deficit. So the game of ‘extend and pretend’ continues.”
  • “As years go by, voters and legislators across the country will have to make a trade-off. They can pay more taxes and cut services; or they can reduce the benefits they pay people who teach their children, police their streets and rescue them from fires. There will be no easy answers.”

Real Estate

WSJ – Daily Shot: John Burns RE Consulting – Home Refinancing 10/11

Health / Medicine

FT – Global childhood obesity rises 10-fold in 40 years – Clive Cookson 10/10

  • “The number of obese children and teenagers across the world has increased 10-fold over the past four decades and is about to overtake the number who are underweight, according to the most extensive analysis of body weight ever undertaken.”
  • “The study, led by Imperial College London and the World Health Organization, used data on 31.5m children and adolescents worldwide to estimate trends in body mass index (BMI) from 1975 to 2016. The results are published in the Lancet.” 
  • “Over this period the number of obese girls, aged 5 to 19, rose from 5m to 50m, while the total for boys increased from 6m to 74m.”
  • “The world’s highest childhood obesity levels are in the Pacific islands of Polynesia and Micronesia. Nauru has the highest prevalence for girls and the Cook Islands for boys: both above 33%.”
  • “Among wealthy countries, the US has the highest obesity rates for girls and boys of about 20%. Levels in most of western Europe are in the 7% to 10% range.” 
  • “A further 213m children are overweight but not sufficiently so to meet the WHO’s obesity criteria, which vary by age. Forty years ago, 0.8% of the world’s children were obese; now the prevalence is close to 7%.” 
  • “The study also looked at adult obesity, which increased from 100m people in 1975 to 671m in 2016. A further 1.3bn adults were overweight (with a BMI above 25) but below the threshold for obesity (BMI above 30).” 
  • “But the authors are most concerned about the findings about childhood obesity, because of their implications for public health many decades into the future.”

Construction

WSJ – Daily Shot: NFIB Labor Quality 10/10

  • “Anecdotal evidence suggests that in some areas of the country, finding workers who can pass a drug test has been challenging.”

WSJ – Daily Shot: John Burns RE Consulting – Builder Labor Shortages 10/11

  • “Skilled (and drug-free) worker shortages in construction are especially acute.”

  • This will only get tighter in the continental U.S. as natural disasters continue to rack up, resulting in acute demand for labor in the affected areas. Harvey, Irma, Maria, Nate, and now wildfires in Northern California. Of course, this will have effects on the neighboring regional labor pools.

Shipping

Economist – How protectionism sank America’s entire merchant fleet 10/5

  • “In April 1956 the world’s first container ship—the Ideal X—set sail from New Jersey. A year later in Seattle the world’s first commercially successful airliner, Boeing’s 707, made its maiden flight. Both developments slashed the cost of moving cargo and people. Boeing still makes half the world’s airliners. But America’s shipping fleet, 17% of the global total in 1960, accounts for just 0.4% today.”
  • “Blame a 1920 law known as the Jones Act, which decrees that trade between domestic ports be carried by American-flagged and -built ships, at least 75% owned and crewed by American citizens. After Hurricane Irma, a shortage of Jones-Act ships led President Donald Trump on September 28th to waive the rules for ten days to resupply Puerto Rico. This fueled calls to repeal the law completely.”
  • Like most forms of protectionism, the Jones Act hits consumers hard. A lack of foreign competition drives up the cost of coastal transport. Building a cargo ship in America can cost five times as much as in China or Korea, says Basil Karatzas, a shipping consultant. And the cost of operating an American-flagged and -crewed vessel is double that of foreign ones, reckons America’s Department of Transportation.”
  • “Inflated sea-freight rates push most cargo onto lorries, trains and aircraft, even though these are pricier and produce up to 145 times as many carbon emissions. So whereas 40% of Europe’s domestic freight goes by sea, just 2% does in America. Lacking overland routes, Alaska, Guam, Hawaii and Puerto Rico are hardest hit. Hawaiian cattle ranchers, for instance, regularly fly their animals to mainland America. A recent report by the Government Development Bank for Puerto Rico found that the Jones Act inflated transport costs for imports to twice the level of nearby islands.”
  • “Jones-Act shipowners retort that the rules are to help producers, not consumers. Rail firms lobbied for the 1920 law, out of fear that an excess of foreign ships from the first world war was flooding the market. National security was also cited. German submarine warfare, it was argued, showed the need for a merchant fleet built and crewed by Americans. But the law has virtually wiped out American shipping. Between 2000 and 2016 the fleet of private-sector Jones-Act ships fell from 193 to 91. Britain binned its Jones-Act equivalent in 1849. Its fleet today has over three times the tonnage of America’s. Marc Levinson, an economic historian (and former journalist at The Economist ) notes that the laws also made American container lines less able to compete on international routes. Drawn by profits at home they underinvested in their foreign operations, and fell behind their foreign rivals because they lacked the same scale.”
  • “Recognizing the harm to their domestic fleets, countries from Australia to China are loosening the rules protecting their fleets. Not America.”

Africa

Economist – The birthplaces of African leaders receive an awful lot of aid 10/7

  • “Scholars have long had a hunch that Chinese aid could be more easily manipulated than the Western sort, which often comes with strings attached. A Chinese white paper in 2014 stated that the government would not impose any ‘political conditions’ on countries asking for help. The commerce ministry, China’s lead aid agency, says most projects are initiated by recipient states. This approach makes aid more vulnerable to misuse by local leaders, say critics.”
  • “In a working paper, the pundits show that China’s official transfers to a leader’s birth region nearly triple after he or she assumes power. Even when using a stricter definition of aid provided by the OECD, a club of mostly rich countries, an increase of 75% was found. They got similar results when looking at the birthplaces of presidential spouses. Crucially, they found no such effect with aid doled out by the World Bank, their benchmark for Western assistance. ‘We believe Chinese aid is special,’ says Andreas Fuchs, a co-author of the study.”
  • “China’s approach to aid has other side-effects. In a paper released earlier this year, Diego Hernandez, an economist, showed that China’s rise as a development financier has increased competition between donors. This, in turn, has strengthened recipients’ bargaining power, says Mr Hernandez. Traditional donors have responded by lowering conditionality, or the number of strings attached to aid. Using data from 1980 to 2013, he finds that African countries have received 15% fewer conditions from the World Bank for every 1% increase in Chinese aid.”

June 24 – June 30, 2016

Japanese banks wary of property risks. Negative-yielding sovereign debt jumps to $11.7tn.

This week all the media outlets were blanketed with coverage on the Brexit and of course the synopsis varied from catastrophe (a lot of money was lost in the equity markets around the world immediately – which have already made up a lot of lost ground), to concern over the survival of the European Union, to a general ‘meh.’  Remember, the world moves on.  Importantly, Britain is still part of the EU. No one has triggered Article 50 of the Lisbon Treaty yet and even when Britain does trigger the article, there is a two-year exit process with the EU.  As such, some even think that Britain may not eventually leave.  So for now as the Brits like to say, keep calm and carry on.

Headlines

Briefs

    • “Moody’s Investors Service is predicting that China’s property markets are facing a double-whammy of growing margin pressures for developers and tapering growth in home sales nationwide.”
    • “The rapid growth in land costs will raise the developers’ capital requirements and will also likely add margin pressure in the next 12-24 months. Furthermore, developers that acquired land with high unit costs in major cities will face increased business risks, given our expectation that price growth in these cities will moderate.” – Dylan Yeo, Moody’s analyst
    • “The report from Moody’s follows a note from S&P Global Ratings last week reiterating expectations for growing bond defaults onshore in China, with those for property developers forecast to have the biggest potential impact.”
    • “Between 2005 and 2015 the world’s cities swelled by about 750m people, according to the UN. More than four-fifths of that growth was in Africa and Asia; specifically, on the fringes of African and Asian cities. With few exceptions, cities are growing faster in size than in population. Lagos, the capital of Nigeria, is typical: it doubled in population between 1990 and 2010 but tripled in area. In short, almost all urban growth is sprawl.”
    • “London took two millennia to grow from fewer than 30,000 people to almost 10m; Shenzhen in China managed that within three decades. And most African and Asian cities are growing more chaotically.”
    • “Like it or not, this is how the great cities of the 21st century are taking shape.”
    • “Shlomo Angel of New York University has studied seven African cities in detail: Accra, Addis Ababa, Arusha, Ibadan, Johannesburg, Lagos, and Luanda. He calculates that only 16% of the land in new residential areas developed since 1990 has been set aside for roads – about half as much as planners think necessary. And 44% of those roads are less than four meters wide.”
  • Laura Kusisto of the Wall Street Journal highlighted that yes, today’s renters really are worse off than their parents.
    • “Inflation-adjusted rents have risen by 64% since 1960, but real household incomes only increased by 18% during that same time period, according to an analysis of U.S. Census data released by Apartment List, a rental listing website.”
    • “Renters fared the worst during the decade between 2000 and 2010, when inflation-adjusted household incomes fell by 9%, while rents rose by 18%, according to Apartment List.”
    • In regard to inflation “…housing still largely relies on U.S. labor and materials (and zoning restrictions), making it one of the few essentials that haven’t become cheaper with globalization.”
  • Claire Jones and James Shotter of the Financial Times reported on the IMF’s recent opinion that Germany do more to reform its banks.
    • “The International Monetary Fund has warned that ultra-low interest rates pose a threat to the profitability of Germany’s 13tn financial sector, as it steps up its call for the country’s banks and insurance groups to restructure.”
    • “The IMF has supported the ECB’s aggressive monetary easing and indicated that the onus was on German banks and their regulators and supervisors to reform.”
    • “Given its high share of savings and co-operative banks – whose business revolves around taking deposits from and making loans to local communities – the German banking system is highly dependent on interest rates.”
    • “A study by BaFin, the German financial watchdog, and the Bundesbank last year found that Germany’s 1,500 small and midsized banks expected profits to fall by an aggregate of 25% by 2019, mainly owing to the collapse in net interest income. The study projected that if rates fell a further 100 basis points, lenders’ profits would plunge at least 60% by the same date.”

Special Reports

Graphics

FT – Fed on alert for US economic recoil – Sam Fleming 6/24

FT_Fed funds futures curve_6-24-16

FT – Unicorns: Between myth and reality – Richard Waters and Leslie Hook 6/27

FT_Venture capital invested in US_6-27-16

Bloomberg – San Francisco Landlords Gird for Slowdown as Startup Frenzy Ebbs – Alison Vekshin 6/28

Bloomberg_San Francisco Office Vacancies rise_6-28-16

Economist – Foreign direct investment 6/25

Economist_Foreign direct investment_6-25-16

WSJ – Today’s Renters Really Are Worse Off Than Their Parents – Laura Kusisto 6/29

WSJ_Today’s Renters Really Are Worse Off Than Their Parents_6-29-16

Featured

*Note: bold emphasis is mine, italic sections are from the articles.

Overheating Risk Makes Japanese Banks Wary of Property Lending. Tesun Oh Katsuyo Kuwako. Bloomberg. 27 Jun. 2016.

“Japanese banks are reining in their exposure to the property market on concern the central bank’s negative-rate policy is fueling overheating.”

“We’re watching the market carefully because we get a strong sense that the market is being pushed up mainly by a lot of lending.” – Michiya Fujii, head of the real estate finance department, Tokyo Star Bank, Ltd.

“Lending to the real estate sector rose to a record high in March, exceeding levels during Japan’s asset bubble in the late-1980s, according to Bank of Japan data.”

Bloomberg_Japanese real estate bank loans_6-27-16

When you look at the options for income investors you can understand why. “While the average expected yield for central Tokyo office property fell to 3.7% in the first quarter, its lowest since at least mid-2007, that is still 82 times the 0.045% yield an investor can earn from buying 20-year government debt. Ten-year yields have dropped 10 basis points this month to minus 0.22%.”

“Considering the downside risks, this is not a time when we can aggressively lend. What’s important is, when the time comes and the market turns, how much durability we’ve built into the portfolio.” – Katsumi Taniguchi, head of the planning team of the real estate finance department at Sumitomo Mitsui Trust

Additionally, while rates are low real estate investment trusts and large developers are taking advantage of the opportunity to lower their borrowing costs.  “Nippon Building Fund Inc., Japan’s largest REIT, sold 30-year debt this month at a coupon of 1%, while the largest developer Mitsubishi Estate Co. issued 40-year bonds at 0.789%.”

Negative-yield government debt surges $1.3tn to $11.7tn Adam Samson. Financial Times. 30 Jun. 2016.

“The universe of negative-yielding government debt has increased by more than $1tn in the last month to reach a high of almost $12tn in one of the most tangible results of Britain’s decision to leave the EU.”

“Low sovereign bond yields reflect gloomy economic outlooks and expectations of central bank stimulus. In turn a record $11.7tn of global sovereign debt has now entered sub-zero territory – an increase of $1.3tn since the end of May, according to data released by Fitch Ratings.”

FT_Gobal negative yielding sovereign debt rises to $11.7tn_6-30-16

“You have to look at the response by central banks after the Brexit shock. You’re seeing a ubiquitous tilt toward easing among G4 central banks (Federal Reserve, European Central Bank, Bank of Japan, and the Bank of England).” – Ben Mandel, a global strategist at JPMorgan Chase

Because of this, “futures markets suggest investors saw a roughly 75% chance that the Federal Reserve will not raise interest rates over the next 12 months.”

FT_Government debt yields under pressure_6-30-16

Other Interesting Articles

The Economist

Bloomberg – China’s Idled Wind Farms May Spell Trouble for Renewable Energy 6/28

Economist – Why Brexit is grim news for the world economy 6/24

FT – The perfect financial crime 6/25

FT – South Korea plans stimulus boost in wake of Brexit 6/27

FT – Broad, deep and brutal – Asia’s Brexit reaction 6/29

FT – Brazilian bankruptcies create opportunities for debt investors 6/29

Project Syndicate – Brexit and the Future of Europe (George Soros) 6/25

Reuters – Post-Brexit global equity loss of over $2 trillion worst ever: S&P 6/26

The New Yorker – Why Brexit Might Not Happen at All 6/27

WSJ – Shareholder Fight Puts China’s Market Resolve on the Line 6/28