“After a temperate early summer and a balmy Fourth of July, Southern California residents abruptly found themselves in a caldron of triple-digit temperatures and wildfires this weekend.”
“The temperature spike broke with historical weather patterns. While much of the Northern Hemisphere suffers through its hottest days in the summer months — June, July, August — Southern California’s hottest days are often in September or October.”
“Records were shattered in some places on Friday. The temperature at the University of California, Los Angeles, reached 111 on Friday, the hottest it has ever been there. Other record highs, according to the National Weather Service, were 114 at the Hollywood Burbank Airport, 117 at the Van Nuys Airport, 117 in Ramona and 114 in Santa Ana. In Riverside, a high temperature of 118 matched a record set in 1925.”
“China is retreating from a policy that has channeled about $1tn in subsidies to homebuyers since 2016, a reversal that has sent tremors through the country’s residential property market amid broader concerns about a housing bubble.”
“Property investment and home sales have remained strong in recent months despite a broader growth slowdown, but analysts say the withdrawal of subsidies will damp property demand, leading to reduced construction activity.”
“Premier Li Keqiang pioneered the slum redevelopment policy as top party official in north-east China’s Liaoning province in 2005. The policy, which was later rolled out nationwide, financed demolition and reconstruction of dilapidated residential neighborhoods.”
“The program received a boost in 2014, when the People’s Bank of China created a new monetary policy instrument known as Pledged Supplementary Lending, which consisted of loans directly from the central bank to CDB earmarked for slum redevelopment.”
“The turning point came in 2015. Amid a sharp downturn in the housing market that led to a glut of unsold housing, China’s cabinet allowed local governments to provide cash subsidies to residents of slum districts, rather than physical resettlement in newly built flats in the former slum.”
“’Physical resettlement didn’t affect the supply-demand balance. It was self-regulating,’ said Zhao Quanhou, director of the financial research center at the Chinese Academy of Fiscal Sciences, a think-tank under China’s finance ministry.”
“’But monetary resettlement meant you were demolishing old buildings and not replacing them, so there was a net demand increase, and the market impact was large,’ he said.”
“’The policy was basically giving money directly from the central bank to CDB. It spurred a lot of real estate demand, and it also expanded the base money supply,’ said Xu Gao, chief economist at Everbright Securities. ‘Going forward it needs to be adjusted.’”
“Thousands of Turkish teachers, police officers and members of the armed forces have been fired one day before President Recep Tayyip Erdogan is due to be sworn in for a second term after being re-elected with vastly enhanced powers last month.”
“Mr. Erdogan issued a decree dismissing the employees on Sunday. During his election campaign he promised to end a state of emergency imposed in the wake of an abortive military coup two years ago, under which 160,000 public servants have been dismissed and more than 50,000 people have been jailed.”
“The order, published in the Official Gazette on Sunday, fired 18,632 people — nearly half of them from the police force — for allegedly threatening national security. More than 6,000 military personnel and about 200 teachers were also named. Their passports have all been cancelled, the announcement said.”
“The decree also banned 12 civil-society groups, three newspapers and a television broadcaster.”
“The United States on Tuesday ratcheted up its efforts to block Kremlin-linked industrialists from doing business in the West, warning that British banks will have to sever their relationships with the tycoons if they want continued access to American financial institutions.”
“Sigal P. Mandelker, a top American Treasury official in London to meet with her counterparts, said British banks could face ‘consequences’ if they continued to carry out significant transactions on behalf of the 24 influential Russians sanctioned by Washington on Friday. The list includes the industrialists Oleg Deripaska and Viktor Vekselberg, along with Kirill Shamalov, who American officials have identified as President Vladimir V. Putin’s son-in-law.”
“The warning has resonated in London, which for decades has served as a haven for Russia’s wealthiest families. Russian investors own iconic British assets like the Chelsea Football Club and swaths of high-end London real estate, and they support thriving networks of lawyers, financial advisers and estate agents.”
“The new American sanctions expose financial institutions outside the United States to penalties if they ‘knowingly facilitate significant financial transactions’ on behalf of the listed Russian oligarchs.”
“The wording is similar to secondary sanctions imposed against Iran. These ‘essentially prohibit the individuals involved from taking part in the dollar economy,’ said Daragh McDowell, an analyst for Europe and Central Asia at Verisk Maplecroft, a consulting firm based in Bath.”
“It is likely to compel risk-averse British banks to cancel the Russians’ accounts altogether, said Brian O’Toole, a former senior official at the Treasury Department’s Office of Foreign Assets Control, which administers and enforces American sanctions.”
“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.“
“‘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.
“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.”
“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.”
“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.
“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.”
“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.’”
“The authorities call them ‘business cults’. Tens of millions of people are ensnared in these pyramid schemes that use cult-like techniques to brainwash their targets and bilk them out of their money.”
“Many countries suffer from Ponzi schemes, which typically sell financial products offering extravagant rewards. They pay old investors out of new deposits, which means their liabilities exceed their assets; when recruitment falters, the schemes collapse. China is no exception. In 2016 it closed down Ezubao, a multi-billion-dollar scam that had drawn in more than 900,000 investors. By number of victims, it was the world’s largest such fraud.”
“Chinese pyramid schemes commonly practice ‘multi-level marketing’ (MLM), a system whereby a salesperson earns money not just by selling a company’s goods but also from commissions on sales made by others, whom the first salesperson has recruited. People often earn more by recruiting others than from their own sales. Since 1998 China has banned the use of such methods, although it does allow some, mostly foreign, MLM companies to do business in China as ‘direct sellers’. This involves recruiting people to sell products at work or at home.”
“The distinguishing feature of the Chinese scams is the way they combine pyramid-type operations with cult-like brainwashing.”
“Many perfectly legal companies try to boost morale by getting staff to sing company songs or organizing awaydays. China’s business cults, however, combine such techniques with violence.”
“Business cults seem to be growing. In the first nine months of 2017 the police brought cases against almost 6,000 of them, twice as many as in the whole of 2016 and three times the average annual number in 2005-15. This was just scratching the surface. In July 2017 the police arrested 230 leaders of Shan Xin Hui, a scheme that was launched in May 2016 and had an estimated 5m investors just 15 months later. In August 2017, after the government launched its campaign against ‘diehard scams’, police in the southern port of Beihai, Guangxi province, arrested 1,200 people for defrauding victims of 1.5bn yuan ($223m). One scheme in Guangxi, known as 1040 Project, was reckoned to have fleeced its targets of 600m yuan.”
“The scale of the scams worries the government. Their cultish features make it even more anxious. The Communist Party worries about any social organization that it does not control. Cults are especially worrisome because religious and quasi-religious activities give their followers a focus of loyalty that competes with the party.”
“The authorities will find it hard to curb the scams for three main reasons. First, in order to encourage cheap loans for industry, the central bank keeps interest rates low. For years they were negative, i.e, below inflation. That built up demand among China’s savers for better returns. With gross savings equal to just under half of GDP, it is not surprising that some of that pool of money should be attracted to schemes promising remarkable dividends.”
“Second, it is often hard for consumers to spot frauds. In 2005 China legalized direct selling, arguing that there was a distinction between that practice and the way that Ponzi schemes operate. But Qiao Xinsheng of Zhongnan University of Economics and Law argues that the difference is often ‘blurred’ in the eyes of the public. Scammers can easily pass them themselves off as legitimate. Dodgy companies exploit government propaganda in order to pretend they have official status. For example, they may claim to be ‘new era’ companies, borrowing a catchphrase of China’s president, Xi Jinping.”
“Third, argues Mr Li, business cults manipulate traditional attachments to kin. Companies in America often appeal to individual ambition, promising to show investors how to make money for themselves. Those in China offer to help the family, or a wider group. Shan Xin Hui literally means Kind Heart Exchange. It purported to be a charity, offering higher returns to poor investors than to rich ones. (In reality everyone got scammed.) Business cults rely on one family member to recruit another, and upon the obligation that relatives feel to trust each other. This helps explain why investors who have lost life savings continue to support the companies that defrauded them.”
“In a business environment that demands, and rewards, quarterly profits and short-term strategic thinking, Amazon showed extraordinary resolve in focusing on long-term goals, somehow persuading investors to go along.”
“Over its first decade in existence, including long stretches where it consistently reported losses, Amazon enjoyed a luxury afforded few companies: leeway.”
“Amazon has reported an annual profit in only 13 of the 21 years that it has operated as a publicly traded company, according to FactSet, a financial data firm.”
“And its profit margins, already low by some measures, have fluctuated from year to year — hardly moving in the straight upward line that Wall Street usually likes to see.”
“Yet investors have rewarded Amazon for plowing its profits back into growing its businesses, whether in online retail, cloud computing or, most recently, in grocery stores, with the acquisition of Whole Foods Market.”
“Twitter knew about all its fake followers, and always has – eliminating just enough bots to make it seem like they care, but not enough that it would affect the perceived number of active users on the platform.”
“Companies are paying slightly more to borrow, but higher risk-free yields haven’t fed through fully. This is significant.”
“…the ECB, is still at play. The ECB’s bond-buying actions have a twist: in the first four weeks of January, corporate purchases as a share of government purchases stood at 27%, versus 11.5% when the program was running full-tilt at €80 billion a month, according to Deutsche Bank . In other words, corporates are still getting decent support from ECB purchases.”
“One snag is that corporate-bond spreads are already so tight there is little room for error. In Europe, the investment-grade ICE BofAML corporate index yield premium over government bonds is just 0.74 percentage points, its lowest level since August 2007.”
“Investors should watch closely if spreads do widen significantly. It would mean either companies are making riskier, top-of-market types of bets or investors are getting concerned about growth and underlying cash flows. For now, the message from higher interest rates is, don’t sweat it.”
“Digital currency bitcoin BTC=BTSP fell more than 15% on Monday to a nearly three-month low amid a slew of concerns ranging from a global regulatory clampdown to a ban on using credit cards to buy bitcoin by British and U.S. banks.”
“On the Luxembourg-based Bitstamp exchange, bitcoin fell as low as $6,853.53 in early afternoon trading in New York. That marked a fall of more than half from a peak of almost $20,000 hit in December.”
“Bitcoin has fallen in six of the last eight trading session.”
“The currency, which surged more than 1,300% last year, has lost about half its value so far in 2018, as more governments and banks signal their intention for a regulatory crackdown. Last week bitcoin suffered its worst weekly performance since 2013.”
“Across the metropolitan area that surrounds New Delhi, a string of real-estate developers including Unitech, Jaypee Infratech Ltd. and Amrapali Group have been dragged to court by irate homeowners who shelled out payments for apartments that have yet to be completed. Many of these firms took money from a stream of buyers. As sales slumped and the once red-hot market cooled, their businesses unraveled — leaving them grappling with debt.”
“The fallouts from the shakeup in the $126 billion property market are reverberating across companies, markets and the broader economy. Unitech, once India’s largest developer, has plunged to a fraction of its previous valuation. Jaypee is in insolvency court. State-owned banks — the lifeblood of the economy — are grappling with a pile up of bad loans from the industry. Indian families, who have long poured their life savings into real estate, are now pulling back.”
“Indian real-estate businesses expanded as long as firm were able to draw new buyers for planned projects. But as the economy slowed and demand softened, many firms were left short of cash and struggling to manage their debt. The downturn only worsened last year after the government tightened regulations to protect homebuyers and separately introduced a new services tax across all industries. India’s residential sector appears to have shrunk to a fraction of its size in less than a decade, according to Shishir Baijal, managing director of Knight Frank India.”
“Prices dropped 3% on average across the top six cities, according to Knight Frank, with some declining as much as 15% after accounting for developer discounts. And in the capital region, last year’s prices were 9% below their 2015 peak. The outlook remains bleak.”
“The property developers are adding to a pile-up of bad loans in India’s banking sector, which is already struggling to manage a spike in stressed assets across several industries.”
“India’s government has stepped in to regulate the real-estate industry with new laws, including one that forces developers to use at least 70% of sale proceeds to complete residential projects, rather than funnel money to different jobs. Other measures prevent them from pre-selling apartments before all building approvals are obtained.”
“The pain hasn’t been restricted to the North. India’s financial capital, Mumbai, last year witnessed a decline in residential property prices for the first time in a decade. New residential launches across eight Indian cities dropped 41% last year and were down 78% from their peak in 2010, Knight Frank data show.”
“In the virtual currency world this creation process is called ‘mining.’ There is no physical digging, since Bitcoins are purely digital. But the computer power needed to create each digital token consumes at least as much electricity as the average American household burns through in two years, according to figures from Morgan Stanley and Alex de Vries, an economist who tracks energy use in the industry.”
“The energy consumption of these systems has risen as the prices of virtual currencies have skyrocketed, leading to a vigorous debate among Bitcoin and Ethereum enthusiasts about burning so much electricity.”
“All of the computers trying to mine tokens are in a computational race, trying to find a particular, somewhat random answer to a math algorithm. The algorithm is so complicated that the only way to find the desired answer is to make lots of different guesses. The more guesses a computer makes, the better its chances of winning. But each time the computers try new guesses, they use computational power and electricity.”
“The lure of new Bitcoins encourages people to use lots of fast computers, and lots of electricity, to find the right answer and unlock the new Bitcoins that are distributed every 10 minutes or so.”
“This process was defined by the original Bitcoin software, released in 2009. The goal was to distribute new coins to people on the Bitcoin network without a central institution handing out the money.”
“Early on, it was possible to win the contest with just a laptop computer. But the rules of the network dictate that as more computers join in the race, the algorithm automatically adjusts to get harder, requiring anyone who wants to compete to use more computers and more electricity.”
“These days, the 12.5 Bitcoins that are handed out every 10 minutes or so are worth about $145,000, so people have been willing to invest astronomical sums to participate in this race, which has in turn made the race harder. This explains why there are now enormous server farms around the world dedicated to mining Bitcoin.”
“The rules have kept attackers at bay in the nine years since the network got going. Without this process, most computer scientists agree, Bitcoin would not work.”
“But there is disagreement over the real value of Bitcoin and the network that supports it.”
“Mr. de Vries, who keeps track of the use on the site Digiconomist, estimated that each Bitcoin transaction currently required 80,000 times more electricity to process than each Visa credit card transaction, for example.”
“The figures published by Mr. de Vries have been criticized by Mr. Bevand (Marc Devand, a miner and analyst) and other Bitcoin fans, who say they overstate the energy costs by a factor of about three. Many critics add that producing and securing physical money and gold also require lots of energy, in some cases as much as or more than Bitcoin uses.”
“$1 trillion or more is the expected price tag, the New Yorker’s Evan Osnos reports. That’s seven times as costly as the Marshall Plan, on which the U.S. spent $130 billion to rebuild Europe after World War II.”
“70 countries will be involved in the initiative, Chinese news outlet Xinhua reports.”
“At least 36 planned or existing ports outside of China are involved.”
“$786 billion in trade took place between China and Belt and Road partners in the first three quarters of 2017, a 15% increase from 2016.”
“In Pakistan: China is partnering with Pakistan to build $60 billion worth of infrastructure as part of the initiative, CNBC reports.”
“In Thailand: The Chinese partnership with Thailand is expected to yield a 542-mile railroad, carrying high-speed trains that’ll move at up to 150 miles per hour, per CNBC.”
“In Malaysia: One Belt, One Road will spend about $40 billion on four railroad projects, per Xinhua.”
“The rise: The U.S. controls 24% of the global economy and China 15%, compared to 31% and 4% respectively in 2000.”
“A record month for inflows into corporate bonds is ‘setting up a disaster for when rates rise & `investors’ learn that, yes, these bonds have rate risk’ was yesterday’s latest tweeted warning from Jeffrey Gundlach.”
“French utility Veolia Environnement SA is one of a handful of low-rated borrowers—assessed at BBB or lower by Standard & Poor’s—with fixed-rate debt repayable in three years or longer that trades at yields below zero in euros.”
“Veolia already has three-year paper that trades at a negative yield. Those bonds, however, were sold in 2005 at a yield of almost 4.5%; they dipped below zero for the first time last year, and recently turned negative once more.”
“But on Thursday, Veolia went one better by pulling off the neat trick of persuading investors to pay it directly to borrow, selling 500 million euros of bonds repayable in three years at a negative yield of 0.026%—’a first for a BBB issuer,’ the company trumpeted in a press release. What’s more, the sale was oversubscribed by more than four times.”
“Now, you could view the sale one of two ways. For the optimists, it provides evidence that investors are awash with cash and still confident that the European Central Bank’s bond-buying program will continue to support the market.”
“If, like Gundlach, though, you’re concerned that the world of fixed-income is in for a rude awakening and that the stress will first show up in the corporate bond market, you’ll probably view it as a last hurrah before reality hits home with a vengeance.”
The more our world becomes ‘codified,’ the more insights will be derived, the less privacy we will have, and the more predictive the models will become…
“The total value of all homes in the U.S. increased in 2017 to a total $31.8 trillion, according to the latest report from Zillow.”
“This is up from last year’s record high of $29.6 trillion, data from 2016 shows.”
“This is so high, that total homes in Los Angeles and New York City metro areas are worth $2.7 trillion and $2.6 trillion, respectively, the size of the U.K. and French economies.”
“This is an increase of $1.95 trillion over the past year, more than all of Canada’s GDP or two companies the size of Apple, Zillow’s report showed.”
“And renters are also now spending more money than ever before on housing, spending a record $485.6 billion in 2017. This is an increase of $4.9 billion from 2016.”
“Renting in San Francisco is especially expensive as renters collectively paid $616 million more than renters in Chicago, despite having 467,000 fewer renters in San Francisco.“
“Of the 35 largest U.S. markets, most home value growth occurred in Columbus, Ohio, which saw an increase of 15.1% to $152.3 billion in 2017.”
“The gentrification of the Fishtown neighborhood here looks like something city planners dream of, with developers renovating old row houses as young professionals, along with new restaurants and businesses, pile in.”
“But home prices have shot up so quickly in recent years that the latest wave of young professionals say they are having a hard time making the finances work.”
“Now several Philadelphia City Council members want to pass a law requiring property developers to set aside 10% of new projects as below-market units, to improve overall affordability in a city that once was among America’s biggest bargains.”
“Soaring housing costs aren’t confined to New York or San Francisco. Cities including Pittsburgh, Detroit, Buffalo and Nashville all have explored or adopted policies that, like Philadelphia’s, seek to create more cheap housing by an approach known as inclusionary zoning.”
“’It really underscores the housing-affordability problem is much more widespread than simply a problem in the 10 most expensive coastal cities,’ said Stockton Williams, executive director of the Terwilliger Center for Housing at the Urban Land Institute in Washington, D.C.”
“Private-equity funds that focus on real estate have been raising less money for the past few years, and chances are dim that there will be much pickup in fundraising in 2018.”
“But the reason for this trend isn’t that pension funds, endowments and other institutions that invest in private equity have lost their appetite for commercial property. A big part of the slowdown is that private-equity funds haven’t been able to spend all of the money they have raised, according to investors, analysts and fund managers.”
“The declining pace of fundraising and spending is partly due to the old age of the current real-estate cycle. Prices started rising in 2009 and remain near record levels in many cities, including San Francisco and New York, making it trickier to make new investments.”
“This is especially true for the most aggressive opportunistic private-equity funds that typically try to produce returns of at least 20%. Fundraising by these funds has fallen particularly sharply, dropping to $33.5 billion as of Dec. 27, compared with $43.8 billion in 2016 and $63.7 billion in 2015, Preqin said.”
“Still, the large amount of unspent cash sitting in the vaults of private-equity funds has been comforting to investors who are concerned the markets are due for a steep correction. As long as demand for property stays strong, prices are likely to remain healthy.”
“Green Street Advisors says that there was $136 billion of buying power sitting with private-equity firms and real-estate investment trusts at the end of 2017. That compares with about $120 billion at the end of 2016 and less than $80 billion at the end of 2011.”
“Another trend that some expect to accelerate in 2018: investors who buy stakes in real-estate fund managers. Dyal Capital Partners, which raises money to buy minority equity stakes in alternative asset managers, in 2016 purchased an interest in Starwood Capital Group.”
“Park Hill is seeing a number of large foreign investors who invest in real estate express an interest in buying into managers, Mr. Stark said. They are saying: ‘Rather than investing through some third-party manager, why don’t we buy into a manager,’ he said. ‘If you have enough capital you can leverage the talent and buy the machine, not just pay to rent one’.”
Under the guise of preventing money laundering and terrorist financing, “China’s authorities have capped overseas withdrawals using Chinese bank cards at Rmb100,000 per year.”
“China has sought to limit foreign exchange purchases by its citizens in an effort to conserve forex reserves. The new measure plugs one of the few remaining ways Chinese citizens get money out of the country by broadening the Rmb100,000 ($15,400) limit from a single account to a single individual.”
“Previously, the annual limit of Rmb100,000 for overseas withdrawals was set for a single bank card.”
“An annual purchase limit of $50,000 worth of foreign currency per person remained unchanged, said the State Administration of Foreign Exchange (SAFE) in a statement on Saturday.”
“A regional currency analyst said that the move appeared to be a tightening of capital controls. ‘I was not expecting this since outflows have been slowing. But by doing this it clearly shows China’s desire to manage the outflows more aggressively, particularly on individual flows’ he said.”
In other words, if you happen to make or to have made a meaningful amount of money in China, don’t plan on taking it home. It’s like a casino, the house always wins if you play long enough – especially, if you’re not allowed to leave the table with your chips.
The follow up question: will U.S. companies with meaningful overseas cash balances be allowed to repatriate funds in 2018 now that the U.S. tax laws have changed?
“With hospital shelves bare and the government stumped on how to settle $5 billion in arrears to pharmaceutical companies, cash-strapped Venezuela recently offered some foreign suppliers alternative compensation: diamonds, gold and coltan, the rare metal used to make cellphones and Playstations.”
“While it isn’t clear if any of the companies accepted it, the proposal underscores how Venezuela’s economic collapse is forcing President Nicolás Maduro’s embattled administration to improvise to pay for goods as severe dollar shortages push the country toward a barter society.”
“Bartering is also creeping into daily street transactions for staples, partly because the government is too broke to print enough currency. The so-called Strong Bolivar, which the government created in 2008 by lopping three zeros off its previous currency, lost 97% of its value in 2017 alone as the oil-rich country plunges further into hyperinflation.“
“Using commodities as payment isn’t uncommon for large global companies trading in mining or oil, but is almost unheard of as a way to settle debts to other sectors like pharmaceuticals, according to Caracas-based economic consultant Orlando Ochoa.”
“Given the country’s opaque finances, it isn’t clear how much Venezuela holds in certified precious metals and stones.”
“As for the Health Ministry’s proposal to pharmaceutical suppliers, ‘It feels like a bluff,’ Mr. Ochoa said. ‘It’s as if they want to show off their assets to give the illusion that there’s still an intention of paying even though they can’t pay’.”
“Lower crude prices and nearly two decades of profligate public spending have left Venezuela’s economy—once Latin America’s most prosperous—in tatters. Gross domestic product shrunk by more than 16.5% in 2016, according to the government, and there is scant evidence of improvement in 2017. The International Monetary Fund estimates inflation will top 2,000% in 2018. The government has defaulted on more than $700 million in bonds in recent months, spurring drastic cuts in imports that have resulted in chronic shortages of food and medicine.”
“Tito López, head of Venezuela’s Pharmaceutical Industry Chamber, says because companies in his sector haven’t received payments from the government in more than a year, 95% of medications that were available three years ago aren’t now. Antibiotics and treatments for chronic illnesses like hypertension and diabetes are among those hardest to find.”
“In the past pharmaceutical companies operating in Venezuela have considered accepting bonds or even oil as payment, but the government has never followed through, Mr. López said. ‘What we’re missing is a serious system that actually guarantees payments,’ he added.”
“The largest pension plans held by S&P 500 companies face a $348 billion funding gap. As a result, they’re paying higher annual fees to the U.S. Pension Benefit Guaranty Corp., the government agency that backstops plans. ‘There’s increased awareness that an underfunded plan imposes risk on employees, it imposes risk on shareholders, and it’s getting more expensive,’ says Olivia Mitchell, a professor at the University of Pennsylvania’s Wharton School and executive director of the Pension Research Council.”
“Only about two dozen companies in the S&P 500 have overfunded pensions. Nine of them are banks.”
“Offloading risk isn’t on the table for every company. Insurers don’t take on obligations from underfunded plans…”
“Korea has emerged as a sort of ground zero for the global crypto-mania. So many Koreans have embraced bitcoin that the prime minister recently warned that cryptocurrencies might corrupt the nation’s youth. The craze has spread so far that, in Korea, bitcoin is trading at a premium over prevailing international rates.”
“One of Europe’s leading energy consultancies has estimated that Tesla’s electric haulage truck will require the same energy as up to 4,000 homes to recharge, calculations that raise questions over the project’s viability.”
“The US electric carmaker unveiled a battery-powered lorry earlier this month, promising haulage drivers they could add 400 miles of charge in as little as 30 minutes using a new ‘megacharger’ to be made by the company.”
“John Feddersen, chief executive of Aurora Energy Research, a consultancy set up in 2013 by a group of Oxford university professors, said the power required for the megacharger to fill a battery in that amount of time would be 1,600 kilowatts.”
“That is the equivalent of providing 3,000-4,000 ‘average’ houses, he told a London conference last week, ten times as powerful as Tesla’s current network of ‘superchargers’ for its electric cars.”
“Pressured by low yields and political issues at home, cash-rich private investors from China and Hong Kong are snapping up trophy buildings in the U.K. capital. Often prepared to spend whatever it takes, these wealthy investors are pricing institutional investors out of the market. And because they don’t need to borrow to buy, U.K. lenders are feeling the pinch.”
“Of the £12.2 billion ($16.1 billion) spent on central London offices in the first three quarters this year, almost half came from private Chinese and Hong Kong buyers, according to real-estate consultant Knight Frank. That is a big jump from last year, when the group accounted for just less than a quarter of overall spending, and from 2015, when the figure was 7%.”
“By borrowing money at home, Chinese and Hong Kong investors have also pushed down property lending in London. According to a report by De Montfort University, the volume of new loans in the U.K. has fallen 18% year-over-year in the first half of 2017 due to a ‘slowdown in purchasing activity of new properties requiring debt during 2017’.”
“U.K. institutional investors such as asset managers are also dialing back. In all, they have bought £880 million of central London real estate so far this year, out of a total £15.68 billion spent by all investors, according to www.propertydata.com. Two years ago, U.K. institutions bought £2.89 billion worth of property.”
“’London is a two-tier market right now—the Asian investors and everybody else,’ said Joe Valente, head of research and strategy of European real estate at J.P. Morgan Asset Management, adding that the firm is waiting for the prices to fall before entering the market again.”
Finance
WSJ – Daily Shot: FRED – Commercial and Industrial Loan Growth 11/27
“Japanese companies are scouring the country for workers and offering more attractive permanent contracts as they struggle to overcome the worst labor shortages in 40 years.”
“Companies across a range of sectors — from construction to aged care — have warned in recent days that a lack of staff is starting to hit their business.”
“The hiring difficulties highlight Japan’s declining population and the strength of its economy after five years of economic stimulus under Prime Minister Shinzo Abe.”
“’Delays to construction projects are becoming chronic,’ said Motohiro Nagashima, president of Toli Corporation, one of Japan’s biggest makers of floor coverings.”
“One way companies are tackling shortages is by offering more generous permanent contracts, which provide job security and pension benefits. That policy has broken a decades-long trend towards more part-time and contract work.”
“The way companies are responding — using every means other than wage increases — suggests that shortages will not yet turn into higher inflation.”
“Irregular work has risen relentlessly from about 19% of total employment when Japan’s bubble burst in 1990, to a peak of 37.9% in 2015.”
“But there are now signs of stabilization, with the percentage of irregular staff falling to 37.4% in the third quarter of this year.”
“The global gender gap will take 100 years to close at the current rate of change, according to new World Economic Forum research.”
“The WEF’s annual report into gender equality found increasing inequality at the workplace and in political representation, contributing to its calculation that it would take a century to reach overall gender parity compared with its estimate last year of 83 years.”
“According to the WEF’s metrics — which take into account disparities between men and women in health and education, as well as politics and the workplace — the world has closed 68% of the gap between total gender inequality and total equality.”
“This level is slightly worse than the figures for 2016 and 2015, when the gender gap was 68.3 and 68.1%, respectively, and represents the first widening of the gap since the WEF began such calculations 11 years ago.”
“Of the 142 countries covered in the 2017 report, the gender gap had increased in 82, with countries such as Kenya, Brazil, Japan and India regressing in terms of the number of women in ministerial roles, while countries including Mexico, South Africa and Spain made less progress towards offering women equal economic opportunities.”
“Iceland remains the world’s most gender-equal country, while the US dropped four places to 49 in the country rankings because, in particular, of a significant decline in the number of women holding ministerial positions. The US’s political empowerment measure is at its lowest level since 2007.”
“The top three countries in the index are all Nordic but among the non-European countries in the top ten are Rwanda in fourth place, Nicaragua in sixth place and the Philippines in tenth place.”
“The region of the world with the smallest gender gap is western Europe, which has closed 75% of the gap, followed by North America and eastern Europe.”
“The Middle East and north Africa is the lowest-ranked region, having closed the gap by an average of 60%, and is home to four of the world’s five lowest-ranking countries on female political empowerment: Kuwait, Lebanon, Qatar and Yemen.”
“Mr Trump is right to want to ‘keep America safe’ from such influences, even if he muddled his figures. Yet his approach is hardly achieving that. ‘Do you notice we are not having a gun debate right now? That’s because they used knives and a truck!’ he tweeted after the London Bridge attack. True enough. But whereas in the past five years 11 jihadists have launched fatal attacks in America, killing 82 of their 86 victims with bullets, during the same period nine jihadists in Britain, without access to guns, killed only 37, according to the Global Terrorism Database at the University of Maryland. America’s overall homicide rate is five times Britain’s. British crime statistics may well contain lessons for America, but not the ones Mr Trump claims.”
“E-commerce will not obliterate all retail trade. Stores that are distinctive in one way or another—because they offer excellent service, for instance, or unique products—will remain. But consider the change already wrought in America, where e-commerce accounts for about one-tenth of retail spending. If that share were to rise to one-fifth, let alone one-third, the effects would be vast. In the longer run the impact of e-commerce will not be limited to the conventional retail industry it is increasingly replacing. It will also change how consumers spend their days, transform the landscape, disrupt workers’ lives and reshape governments’ view of corporate power.”
“For consumers, e-commerce has ushered in a golden age. They can choose from more products of better quality than ever and spend far less time and effort to get what they want. Once-complacent manufacturers must compete fiercely for their business. No wonder Amazon is the most popular company in America, according to a recent Harris poll.”
“As demand for physical shops ebbs, that for warehouses will surge. Citi estimates that 2.3bn square feet (214m square meters) of new warehousing—equivalent to about 20,000 football pitches—will be needed worldwide over the next 20 years.”
“The future for ailing stores is less certain. Many shops in big cities will remain, less as sales hubs than as showrooms. Rents for them will probably come down. Retail rents are already falling in America and in much of Asia, according to CBRE, a property agency.”
“An even hotter topic is the effect of all this on employment. So far the decline in traditional retail jobs in America seems to have been offset by a rise in warehousing work. Between 2007 and 2017 the number of retail jobs shrank by 140,000 while those in e-commerce and warehousing rose by about 400,000, according to Michael Mandel of the Progressive Policy Institute, a think-tank. But the net gain in jobs may be temporary. Stores are only now starting to close, and those that remain are just testing automation. More robots will be used in warehouses, too, as their costs come down and their picking skills improve.”
“Barring any dramatic intervention, however, the biggest e-commerce sites look set to get bigger. Amazon and Alibaba typify a new breed of conglomerate that benefits from network effects. The more shoppers firms can muster, the more sellers will flock to them, attracting yet more shoppers. These effects are turbocharged by the breadth of their businesses and the vast amount of data they generate. This does not mean they will dominate every sector or market, but their mere presence in an industry will reshape it. The question is not if they will keep upending retailing, manufacturing and logistics, but which industry and part of society they will change next.”
“Hong Kong’s richest person Li Ka-shing is selling the city’s center—literally.”
“The billionaire’s property firm CK Asset has agreed to sell its stake in The Center, a 73-storey skyscraper in Hong Kong’s central business district, for $5.15 billion, making it the world’s most expensive commercial building ever. The sale continues Mr. Li’s retreat from China and Hong Kong in recent years as he invests in sectors like utilities in developed markets such as Australia and the U.K. Last year, he sold a commercial property project in Shanghai for about $3 billion.”
“The major shareholder entity buying The Center is an oil company in which the Communist Party of China has an effective 15% stake.”
“The S.E.C. said in a statement released on Wednesday afternoon that celebrities who promoted coin offerings could be violating multiple laws, including antifraud regulations and rules that govern investment brokers.”
A very insightful read on the affordable housing crisis in California (or substitute any high cost metro/area), the proposed efforts to combat it, an insiders understanding of why these efforts will fall short, and some real solutions.
“After a prolonged stretch of explosive growth, fueled by interest from Wall Street, experts say there are now too many fast-food, casual and other chain restaurants.”
“Since the early 2000s, banks, private equity firms and other financial institutions have poured billions into the restaurant industry as they sought out more tangible enterprises than the dot-com start-ups that were going belly-up. There are now more than 620,000 eating and drinking places in the United States, according to the Bureau of Labor Statistics, and the number of restaurants is growing at about twice the rate of the population.”
“The glut of restaurants has increased the pressure on individual restaurant owners. Industry sales are up nationally, but growth has slowed to the lowest rate since 2010.”
“Customers continue to spend a large share of their food budget in restaurants, but they’re spreading the money across a larger number of establishments, so profits are split into smaller individual pieces. Yet the industry — particularly chain restaurants — continues to expand, a strategy that both masks the problem and makes it likely that more places will falter.”
“Sales at individual chain restaurants, compared with a year earlier, began dropping in early 2016, analysts reported. A majority of restaurants reported sales growth in just four of the last 22 monthly surveys from the National Restaurant Association. Before that, most restaurants had reported growth for 20 consecutive months, from March 2014 through October 2015, the survey found.”
“As Americans work longer hours and confront an ever-growing array of food options, they are spending a growing share of their food budget — about 44 cents per dollar — on restaurants, according to food economists at the United States Department of Agriculture Economic Research Service.”
“But while consumer demand contributed to the restaurant boom, it was changes on Wall Street that really fueled the explosion. Chains like Del Taco, Papa Murphy’s and others began attracting money from private equity firms, and banks like Wells Fargo and Bank of America saw lending opportunities in the restaurant industry.”
“…some franchisees say they’re being pressured to open too many stores as food companies push for new revenue streams. Buying an existing restaurant, for example, may mean agreeing to build 10 new ones.”
“’They want us to sign aggressive development agreements,’ said Shoukat Dhanani, the chief executive officer of the Dhanani Group, which owns hundreds of Burger King and Popeyes restaurants. ‘I didn’t see that even five years ago.’”
“The shuttering of restaurants could have a major impact on the labor market. Since 2010, restaurants have accounted for one out of every seven new jobs, and many restaurateurs complain that it has become increasingly difficult to hire and retain workers.”
“Those positions could be in jeopardy if sales continue to fall and force more restaurants to close. Over the summer, the parent company of Applebee’s announced it would close more than 100 locations. In 2016 Subway, the nation’s largest fast-food chain by location count, closed more locations than it opened, the first time in its history that had happened.“
“It is a seller’s nightmare: Putting a luxury condo on the market, only to find that upstairs, another unit that has never been lived in is on the market for the same price or less. And to make matters worse, the seller upstairs has the resources to keep cutting his price if his place doesn’t sell.”
“This is the plight that some owners of luxury condos built in the past few years are encountering, as they find themselves in direct competition with their building’s developer when it comes time to sell.”
“It isn’t supposed to work this way. Typically, developers don’t allow buyers to resell for the first year after a building is completed, to prevent owners from quickly flipping their homes for a profit. In a hot market, a year gives the developer plenty of time to sell most of a building’s units.”
“But now sales at the top end of the luxury market are starting to slow. In total, the number of sales for Manhattan apartments priced at $10 million or more fell by 25% in the third quarter, compared with the same period last year, according to a Wall Street Journal analysis of public property records.”
“’There are lots of buyers out there who are finding that their assets are being devalued by their own sponsor,’ said Frances Katzen of Douglas Elliman, an agent preparing to put a resale on the market at 30 Park Place. ‘I think that there are plenty of people who are very angry to see that.’”
“Take One57, the ultraluxury tower on New York’s West 57th Street which quickly became known for its high-end amenities, top prices and wealthy buyers when it launched sales in 2011. Despite the buzz, nearly a dozen available listings are still posted online after six years of sales efforts by Extell Development, the building’s developer. The result: The developer is cutting its prices.”
“For example, a four-bedroom, 43rd floor unit is currently on the market for $17.5 million after listing for $19 million in 2015, and a three-bedroom, 42nd floor unit is asking $16.9 million, down from $18.75 million in 2015, according to listings website StreetEasy.”
“Owners in the building who wish to resell are doing the same. Late last year, a seller at One57 swallowed a more than $8 million loss when the unit sold for $23.5 million, far less the $31.7 million it sold for two years prior.”
“A Trump administration proposal aimed at shoring up coal-fired and nuclear power plants across the nation has generated opposition from an array of energy and consumer interests, including some who are often at odds on energy policy.”
“Oil and gas companies, wind and solar power producers, some public utilities, electricity consumers and environmentalists—rarely natural allies—are all publicly opposing the Energy Department’s proposal. The plan would effectively guarantee profits for some nuclear and coal-fired power plants, prompting critics that also include former federal regulators to call it a bailout for struggling plants that undermines competitive markets.”
“China’s central bank chief just warned about a potential bubble in China: Rising household debt.”
“‘Regarding household debt levels, China doesn’t rank that high on a global scale, but the pace of growth has picked up in the last few years,’ People’s Bank of China governor Zhou Xiaochuan said Thursday. He didn’t expect any action should be taken immediately but said the debt levels should be monitored for quality and a steady pace of growth.”
“The bigger worry about China has been high levels of corporate and local government debt. The Chinese government has spoken about the need to limit that growth, and most analysts expect authorities will gradually rein it in. But this year, household debt has arisen as another area of concern about financial leverage in China.”
“‘China’s household debt has been rising at an ‘alarming’ pace over the past two years,’ Citi analyst Li-Gang Liu said in an Oct. 10 note. The report pointed out that outstanding household debt in China has doubled from 29.6% of gross domestic product at 16 trillion yuan ($2.41 trillion) in 2012 to 44.3% of GDP at 33 trillion yuan last year.”
“In order to prevent speculation from sending property prices even higher, local Chinese governments have implemented policies to restrict purchases such as limiting the number of apartment units someone can own and how soon they can resell them.”
“The IMF pointed out in its Global Financial Stability Report earlier this month that Chinese banking sector assets are now 310% of GDP, up from 240% at the end of 2012 and nearly three times the emerging market average.”
“‘Debt in China is our No. 1 risk in the whole world,’ said Paul Christopher, head global market strategist at Wells Fargo Investment Institute. But rather than worrying about financial disruption from China, ‘I would worry more about the prospect of slowing China demand.'”
“In a report last Monday about how increasingly wealthy Chinese will boost demand for high-end products, Sanford C. Bernstein analysts said the property market has been the ‘single largest driver’ of the increase in Chinese wealth. They estimate the property market has increased in value by about $12 trillion since 2010, while overall private wealth among Chinese households has increased from $10 trillion in 2010 to $34 trillion.“
“‘As one example, since 2010 the owner of an average 90-square-meter apartment in Shenzhen has experienced a capital gain of almost US$500,000 (nearly a quadrupling in value),’ senior equity research analyst Euan McLeish and a team of analysts wrote. ‘That kind of appreciation in personal assets changes behavior.'”
“Signaling fresh confidence in the region, the European Central Bank began on Thursday to gingerly dismantle an arsenal of emergency measures that for a decade helped to keep the currency and economy from disintegrating in the face of financial turmoil.”
“The decision marks a new phase of the recovery, after four years of economic expansion and falling unemployment. Mario Draghi, the central bank’s president, heralded what he called ‘the unabated growth momentum’ in the 19-country euro area.”
“The European Central Bank, which held the benchmark interest rate steady at a historic low of zero percent, provided a timetable on Thursday for rolling back purchases of government and corporate debt, a program known as quantitative easing.”
“It had been buying 60 billion euros, or about $70 billion, of such bonds every month, and will scale that back to €30 billion a month for nine months, starting in January. The bank will also reinvest the proceeds when bonds mature, so that in practice the monthly purchases will be well above €30 billion. Over all, the measures were in line with expectations.”
“To avoid provoking renewed turmoil, the European Central Bank is moving slowly.”
“It stressed on Thursday that it ‘stands ready’ to increase the asset purchases in response to worsening financial conditions or if inflation failed to rise.”
“Historically low interest rates will remain in place for the foreseeable future. The central bank has said it will not begin raising rates until it has stopped buying bonds, and only if the eurozone inflation rate is on track to hit the official target of 2%”
