Tag: Amazon

October 30, 2017

The tally is in – daily (or at least close to it).

Perspective

WEF – This chart might change how you think about migration – Frank Chaparro 8/29

How Much – How Trump Tax Rate Changes Affect You – Raul 10/22

Economist – Globalization has marginalized many regions in the rich world 10/27

Worthy Insights / Opinion Pieces / Advice

Bloomberg Businessweek – Italians Have Perfected the Art of Waiting It Out – Vernon Silver 10/18

Bloomberg Businessweek – Amazon Is Getting a Good Deal in Ohio. Maybe Too Good – Mya Frazier 10/26

  • “Amazon’s nine-figure tax incentives in Ohio have strained local public services as the state’s employment growth continues to lag the national average.”

Bloomberg View – Morningstar’s Star System Was Always a Bright Shinny Object – Barry Ritholtz 10/26

  • “Retail and professional investor alike seem to ignore the fact that every single document ever generated by any investment-related firm has a warning on it to the effect that ‘Past performance is not an indicator of future returns.’ Every chart ever drawn, each investing idea back-tested and every single historical comparison is testament to how little mind humans pay to that disclaimer.”

Bloomberg View – Think the U.S. Has a Facebook Problem? Look to Asia – Editorial Board 10/22

  • “…its platform exacerbates the potential for violence and social breakdown.”

Economist – Globalization’s losers: The right way to help declining places – Leaders 10/21

  • “Mainstream parties must offer voters who feel left behind a better vision of the future, one that takes greater account of the geographical reality behind the politics of anger.”
  • “Economic theory suggests that regional inequalities should diminish as poorer (and cheaper) places attract investment and grow faster than richer ones. The 20th century bore that theory out: income gaps narrowed across American states and European regions. No longer. Affluent places are now pulling away from poorer ones. This geographical divergence has dramatic consequences. A child born in the bottom 20% in wealthy San Francisco has twice as much chance as a similar child in Detroit of ending up in the top 20% as an adult. Boys born in London’s Chelsea can expect to live nearly nine years longer than those born in Blackpool. Opportunities are limited for those stuck in the wrong place, and the wider economy suffers. If all its citizens had lived in places of high productivity over the past 50 years, America’s economy could have grown twice as fast as it did.”

Economist – Why Airbus’s tie-up with Bombardier is so damaging for Boeing 10/19

Economist – Firms that burn up $1bn a year are sexy but statistically doomed – Schumpeter 10/21

  • “Consider Tesla, a maker of electric cars. This year, so far, it has missed its production targets and lost $1.8bn of free cashflow (the money firms generate after capital investment has been subtracted). No matter. If its founder Elon Musk muses aloud about driverless cars and space travel, its shares rise like a rocket—by 66% since the start of January. Tesla is one of a tiny cohort of firms with a license to lose billions pursuing a dream. The odds of them achieving it are similar to those of aspiring pop stars and couture designers.”
  • “Investing today for profits tomorrow is what capitalism is all about. Amazon lost $4bn in 2012-14 while building an empire that now makes money.”
  • Tell that to the mom and pop shops that are crowded out because they have to be profitable.
  • “Most billion-dollar losers today are energy firms temporarily in the doldrums as they adjust to a recent plunge in oil prices. Their losses are an accident.”
  • “But a few firms love life in the fast lane. Netflix, Uber and Tesla are tech companies that say their (largely unproven) business models will transform industries. Two others stand out for the sheer persistence of their losses. Chesapeake Energy, a fracking firm at the heart of America’s shale revolution, has lost at least $1bn of free cashflow a year for an incredible 14 years in a row. Nextera Energy, a utility that runs wind and solar plants, and which investors value highly, has managed 12 years on the trot.”
  • “Collectively these five firms have burned $100bn in the past decade, yet they boast a total market value of about $300bn… The experience of the five suggests that bending reality today has three elements: a vision, fast growth, and financing.“
  • “…Sustaining a reality distortion field is possible, but the longer it goes on for, the harder it gets. More capital has to be raised and, in order to justify it, the bigger the firm’s projected ultimate size—its terminal value—has to be.”
  • “A few firms other than Amazon have defied the odds. Over the past 20 years Las Vegas Sands, a casino firm, Royal Caribbean, a cruise-line company, and Micron Technology, a chip-maker, each lost $1bn or more for two consecutive years and went on to prosper. But the chances of success are slim. Of the current members of the Russell 1000 index, since 1997 only 37 have lost $1bn or more for at least two years in a row. Of these, 21 still lose money.”
  • “To justify their valuations, the five firms examined by Schumpeter must grow their sales by an estimated 8-33% each year for a decade. Based on the record of all American companies since 1950, and the five firms’ present revenue levels, the probability of this happening ranges between 0.1% and 25%, using statistical tables from Credit Suisse, a bank.”

FT – The downside of the race to be Amazon’s second home – Richard Florida 10/23

  • For Amazon to really make an impact, forgo the offered public incentives, among other things.

Markets / Economy

Bloomberg Businessweek – Under Trump, Made in America Is Losing Out to Russian Steel – Margaret Newkirk and Joe Deaux 10/25

  • “Foreign steel imports into the U.S. are up 24% in 2017. As the industry grows angry at Trump’s lack of trade action, Russia’s Evraz continues winning pipeline contracts.

WSJ – Daily Shot: Overstock.com 10/24

  • Overstock.com which has been languishing for some time now is on a tear since it announced an initial coin offering (ICO). I suspect that other companies that have been struggling for growth will follow.

WSJ – Daily Shot: Banca Monte dei Paschi di Siena 10/25

  • “Shares of the bailed-out Italian bank Monte dei Paschi resumed trading on Wednesday and promptly declined 70% from the last closing price.”

Real Estate

WP – America’s affordable-housing stock dropped by 60 percent from 2010 to 2016 – Tracy Jan 10/23

  • “The number of apartments deemed affordable for very low-income families across the United States fell by more than 60% between 2010 and 2016, according to a new report by Freddie Mac.”
  • “The report by the government-backed mortgage financier is the first to compare rent increases in specific units over time. It examined loans that the corporation had financed twice between 2010 and 2016, allowing a comparison of the exact same rental units and how their affordability changed.”
  • “At first financing, 11% of nearly 100,000 rental units nationwide were deemed affordable for very low-income households. By the second financing, when the units were refinanced or sold, rents had increased so much that just 4% of the same units were categorized as affordable.”
  • “’We have a rapidly diminishing supply of affordable housing, with rent growth outstripping income growth in most major metro areas,’ said David Brickman, executive vice president and head of Freddie Mac Multifamily. ‘This doesn’t just reflect a change in the housing stock.’”
  • “Rather, he said, affordable housing without a government subsidy is becoming extinct. More renters flooded the market after people lost their homes in the housing crisis. The apartment vacancy rate was 8% in 2009, compared to 4% in 2017. That trend, coupled with a stagnant supply of apartments, resulted in increased rents.”
  • “The study defined ‘very low income’ as households making less than 50% of the area median income, and ‘affordable’ rent as costing less than 30% of household income.”
  • “Most new construction of multifamily housing generally serves high-income renters, according to Freddie Mac. The corporation — along with Fannie Mae, another government-sponsored enterprise with a similar mission — significantly reduced its role in financing multifamily housing after the Great Recession.”
  • “Together, they had financed about 70% of all original loans for multifamily properties in 2008 and 2009 as private capital pulled back, said Karan Kaul, a research associate at the Housing Finance Policy Center at the Urban Institute. By the end of 2014, their market presence declined to 30%.”
  • “‘The affordability issues are becoming more severe at the lower end of the market,’ said Kaul, a former researcher at Freddie Mac. ‘Absent some kind of government intervention or subsidy, there is just not going to be any investments made at that lower end of the market.'”

Energy

FT –  US oil floated on cheap money – John Dizard 10/28

Construction

WSJ – Daily Shot: CME Lumber Futures 10/23

  • “Lumber futures are soaring in response to the NAFTA jitters. US home construction/renovation costs are sure to rise.”

Middle East

Economist – The boycott of Qatar is hurting its enforcers 10/19

  • “If Saudis and Emiratis will not trade with Doha, Iranians will.”

October 13 – October 19, 2017

The corporate drug industry has had many friends in Washington D.C. until now… Amazon is taking over the package room of your apartment building. China’s property boom unlikely to end anytime soon.

Headlines

Economist – The Philippine army recaptures a city seized by Muslim insurgents 10/17. After 5 months, the Philippine forces of President Rodrigo Duterte took back the city of Marawi on the island of Mindanao.

FT – Wanda golf courses closed in China austerity push 10/15. The two courses are in the $3bn Changbaishan resort in Fusong. The why – because new courses were banned in 2004; however, many developers were able to work their way around the rules…until now.

NYT – Kobe Steel Problems May Be More Widespread, Raising Fears on High-Speed Rail 10/12. So about that falsified data…we…didn’t…quite…tell…you…about…all…of…it…sorry.

WSJ – Nordstrom Family Suspends Effort to Take Retailer Private 10/16. That’s how strong the narrative is right now against the retail industry, even the Nordstrom family is having difficulty finding investors to fund the debt of the acquisition (despite the world being awash in cash and the tight spreads on high yield products).

WSJ – Hedge Fund Maverick Capital Debuts 0% Performance Fees 10/19. After losing 10% in 2016 and being down 2% so far this year (mind you that the market is up over the same time period), Maverick is offering some investors a 0% performance fee and 1% management fee on new money for its “recovery shares”.

Worthy Insights / Opinion Pieces / Advice

A Teachable Moment – Generation Kill – Anthony Isola 10/16

  • “Young people are killing their chances of building wealth.”

A Wealth of Common Sense – How to Invest At All-Time Highs – Ben Carlson 10/18

  • “The S&P 500 Index has recorded more than 150 new all-time highs since eclipsing its previous peak in late March of 2013. In 2017 alone, there have been 30 new record highs through the end of last week. To put this into perspective, there were only 13 new highs for the entire decade of the 2000s.”

BuzzFeed – Watching Harvey Weinstein Fall, Trump’s Accusers Feel Frustrated – Kendall Taggart & Jessica Garrison 10/14

Economist – Crafty app developers are ripping off big-name brands 10/12

  • Be careful which apps you load onto your phones.

FT – Under Xi Jinping, China is turning back to dictatorship – Jamil Anderlini 10/10

  • “The rejection of ‘western’ political systems has been made easier recently by what the Chinese see as the ludicrous buffoonery of Donald Trump and, to a lesser extent, the self-inflicted damage of Brexit and EU infighting.”
  • “As a top foreign policy adviser recently told one of my colleagues: ‘Trump never talks about democracy or American leadership or liberty — we should not be so stupid to worship things that in the western world are now in doubt.’”
  • Be cautious in your use of ‘private’ messaging services such as WeChat. Big brother is watching.

FT – Hollywood’s masculinity problem – the full picture – Kate Muir 10/12

FT – The implications of shelving the Aramco IPO – Nick Butler 10/14

FT – The disruptive power of renewables – Nick Butler 10/15

NYT – Stranded by Maria, Puerto Ricans Get Creative to Survive – Caitlin Dickerson 10/16

NYT – Inside a Secretive Group Where Women Are Branded – Barry Meier 10/17

  • Another example of the power of peer pressure and social learning.

Project Syndicate – The Psychology of Superstar Sex Predators – Raj Persaud & Peter Bruggen 10/19

The Guardian – Meet the new class traitors who are coming out as rich – Alissa Quart 10/16

The New Yorker – Carl Ichan’s Failed Raid on Washington – Patrick Radden Keefe 8/28

Perspective

How Much – The Largest Industry In Each State by GDP – Raul 10/9

WEF – Tech Insider: World Forecasted Population Growth – Gerald Chirinda 10/11

How Much – Can you Retire on $1 Million? Here is How Long You Can Survive in Every State… – Raul 10/12

Top 5 Friendly States for Retirement

  1. Mississippi  – $1 million lasts 25 yrs 6 months
  2. Arkansas – $1 million lasts 25 yrs
  3. Tennessee – $1 million lasts 24 yrs 5 months
  4. Kansas – $1million lasts 24 yrs 5 months
  5. Oklahoma – $1million lasts 24 yrs 4 months

Top 5 least Friendly States for Retirement

  1. Hawaii – $1 million lasts 13 yrs 1 months
  2. District of Columbia – $1 million lasts 14 yrs 2 months
  3. California – $ 1million lasts 15 yrs
  4. Oregon – $1 million lasts 16 yrs 7 months
  5. New York – $1 million lasts 16 yrs 7 months

VC – The Global Leaders in R&D Spending, by Country and Company – Jeff Desjardins 10/13

Pew – Share of counties where whites are a minority has doubled since 1980 – Drew Desilver 7/1/15

How Much – Best US Cities for Families to Save Money – Raul 10/16

The Best Places for Families to Save Money

  1. Spokane, WA; +$83,400
  2. Henderson, NV; +$59,100
  3. North Las Vegas, NV; +$56,600
  4. Las Vegas, NV; +$55,900
  5. Reno, NV; +$48,800

The Worst Places for Families to Save Money

  1. San Francisco, CA; -$62,300
  2. New York, NY; -$54,100
  3. Boston, MA; -$34,000
  4. Washington DC; -$22,200
  5. Philadelphia, PA; -$9,100

VC – How Many Hours Americans Need to Work to Pay Their Mortgage – Jeff Desjardins 10/17

The Republic – Phoenix is getting hotter – and so is the danger – Brandon Loomis 10/18

Pew – Amid decline in international adoptions to U.S., boys outnumber girls for the first time – Abby Budiman and Mark Hugo Lopez 10/17

Bloomberg – Smartphones Are Killing Americans, But Nobody’s Counting – Kyle Stock, Lance Lambert, and David Ingold 10/17

Markets / Economy

Bloomberg Businessweek- Dollar General Hits a Gold Mine in Rural America 10/11

Bloomberg – The Glut of Private Jets Means ‘Insane’ Bargains for Buyers 10/8

Bloomberg – One of the Biggest ICOs Yet Crashes Before It Even Launched 10/19

WSJ – This Market’s Running on Hope, Not Profits 10/12

WSJ – Daily Shot: Bitcoin 10/17

Bloomberg – JPMorgan, Citigroup Expect More Credit-Card Users to Default – Hugh Son, Dakin Campbell and Jennifer Surane 10/12

Real Estate

Bloomberg Businessweek – Distressed Investors Are Already Buying Houston Homes for 40 Cents on the Dollar 10/12

WSJ – Global Investors Pour Billions Into Hudson Yards in Major Bull Market Bet 10/17

WSJ – How Some Malls Manage to Stay Alive Years After Losing Their Mojo 10/17

WSJ – In London, Some Home Buyers Can Only Stay a Few Years 10/19

WSJ – Daily Shot: John Burns RE Consulting – US Housing Supply Overview 10/17

WSJ – Daily Shot: FRED – Multifamily Housing Units Under Construction 10/19

Finance

Economist – Buttonwood: The finance industry ten years after the crisis 10/14

WSJ – Daily Shot: Commonwealth of Puerto Rico GO Bond 10/15

  • “Puerto Rico’s general obligations (GO) debt keeps tumbling. The 8%-coupon bond ‘maturing’ in 2035 is trading at 33 cents on the dollar.”

WSJ – As Edward Jones Tops $1 Trillion in Assets, It Seeks Street Cred – Lisa Beilfuss 10/16

WSJ – Daily Shot: Corporate High-Yield Bond Spreads 10/18

Environment / Science

Economist – Offshore wind farms will change life in the sea 10/12

Bloomberg – There’s a Climate Bomb Under Your Feet 10/6

NYT – LIGO Detects Fierce Collision of Neutron Stars for the First Time – Dennis Overbye 10/16

Project Syndicate – Hurricanes’ Unnatural Toll 10/13

WSJ – Your Next Home Could Run on Batteries 10/15

Economist – Why the North American west is on fire 10/13

  • “The west of the United States has endured some 50,000 wildfires this year, and over 8.5m acres (3.4m hectares) have burned. Northern California has suffered in particular recently as flames have swept through parts of the landscape, killing at least 23 people and devastating wineries. In Canada, as of August 30th (the latest available figure), 7.4m acres had burned.”
  • “Ernesto Alvarado of the University of Washington, who specializes in large fires, says that historically portions of the forests of America’s north-west would burn every five to 20 years. In many areas, however, these fires have been suppressed for over a century by the needs of loggers and residents. Over time, undergrowth, saplings and dead trees accumulate, creating conditions in which a fire can spread very rapidly. Furthermore, a recent reduction in logging has led to an even closer packing together of trees. ‘To maintain good forest health in many of these forests, you need fire,’ says Dr. Alvarado. While some burns are prescribed, they are a fraction of what is required. In Washington, for instance, between 2001 and 2014 the Forest Service burned just 2% of the state’s 9.3m acres of forest.”
  • “In terms of scale, 2017 is not actually an outlier. In the past decade, wildfires have burned an average of 6.6m acres each year in the United States and 6.2m acres in Canada. The particular problem this year is the dispersed nature of the blazes.”
  • “The current state of the north-western forests, combined with the effects of climate change, increase the likelihood that wildfires will be worse in future… Little can be done to reduce the danger without a dramatic increase in prescribed burns, and these are unlikely as people continue to move into forested areas. One further consequence: the smoke and ash that drift across densely inhabited areas affect human health, too. A study by the universities of Harvard and Columbia of slash-and-burn fires in Indonesia in 2015 blamed the fires for 100,000 additional deaths and 500,000 injuries in Indonesia, Singapore and Malaysia. Where there’s smoke, there’s fire: this year’s haze presages years of potentially more ferocious burns.”

Asia – excluding China and Japan

NYT – U.S. Stood By as Indonesia Killed a Half-Million People, Papers Show 10/18

WSJ Video – Inside the Philippines’ Bloody War Against Islamist Militants 10/18

Canada

WSJ – Canada Imposes Tougher Mortgage Rules Effective 2018 – Paul Vieira and Vipal Monga 10/17

  • “Canada’s banking watchdog unveiled tougher mortgage-financing rules that take effect on Jan. 1 that real estate watchers and economists say could dramatically slow house buying and borrowing.”
  • “The most notable measure is a provision that would require all prospective buyers—even those with a down payment of over 20%—to undergo a so-called stress test before a bank can issue a loan. Previously, only buyers with a down payment of less than 20% had to undergo a stress test. Under the stress test, prospective buyers would have to qualify for a mortgage at a rate at whichever is greater: either 2 percentage points above the negotiated rate, or the Bank of Canada’s five-year benchmark rate. The central bank’s five-year rate stands at 4.89%. The regulator originally proposed the test just cover two percentages point above the negotiated mortgage.”
  • “Robert McLister, founder of the Canadian mortgage-rate comparison site RateSpy.com, said the new rules target the fastest-growing part of the mortgage market—uninsured mortgages—and could affect one out of every six prospective home buyers. In Canada, mortgage insurance is mandatory unless the buyer has a down payment of 20% and over.”
  • “’This is easily the most groundshaking mortgage rule of all time, and that’s not an understatement,’ Mr. McLister said in an interview.”
  • “Economists said the tougher mortgage regulations will further hit a softening housing market. Recent data from the Canadian Real Estate Association indicated unadjusted sales in September were 11% below year-ago levels, and price growth has slowed considerably, especially in the Toronto market after the introduction of a foreign-buyer’s tax in southern Ontario.”
  • “TD Bank’s economics team said it anticipates the measures will depress housing demand by 5% to 10% once fully implemented.”

China

FT – China’s $150bn debt-for-equity swap shows signs of fizzling 10/18

WEF – Deloitte: China will grow old before it gets rich – Alex Gray 10/6

WSJ – China’s Greatest Challenge – Anjani Trivedi 10/16

  • Debt…

  • NBFI = Nonbank Financial Institutions

FT – China residential property sales see first fall in 21/2 years – Hudson Lockett 10/18

  • Okay, but look at the volatility. Geez.

Japan

WSJ – Corporate Scandals Say More About Japan Than the Nikkei 10/12

WSJ – Daily Shot: Moody’s Investor Service – Decline of Japan’s Working Age Population 10/18

Middle East

Reuters – Saudi needs Aramco billions as recession slows austerity drive 10/19

FT – Qatar’s wealth fund brings $20bn home to ease impact of embargo – Andrew England and Simeon Kerr 10/18

  • “Qatar’s sovereign wealth fund has brought more than $20bn back onshore to cushion the impact of a regional embargo imposed on the Gulf state.”
  • “Ali Shareef al-Emadi, Qatar’s finance minister, told the Financial Times that Qatar Investment Authority deposits were being used to create a ‘buffer’ and provide liquidity in the banking system after the gas-rich state suffered capital outflows of more than $30bn.”
  • “That followed the decision by Saudi Arabia, the United Arab Emirates, Bahrain and Egypt to cut diplomatic and transport links with the nation in June. The move has triggered the Gulf’s worst crisis in years.”
  • “Moody’s, the rating agency, said last month that Qatar had injected $38.5bn into its economy since the crisis erupted.”

WSJ – Daily Shot: BMI Research  – Saudi Arabia GDP Change Year-over-Year 10/17

South America

FT – IMF crunches the numbers for possible Venezuela rescue 10/15

Featured

WP – The drug industry’s triumph over the DEA – Scott Higham and Lenny Bernstein 10/15

  • Let it be noted the power of this reporting resulted in Rep. Tom Marino withdrawing from consideration to lead the Office of National Drug Control Policy and it appears that the public is more aware of this problem…
  • “In April 2016, at the height of the deadliest drug epidemic in U.S. history, Congress effectively stripped the Drug Enforcement Administration of its most potent weapon against large drug companies suspected of spilling prescription narcotics onto the nation’s streets.”
  • “By then, the opioid war had claimed 200,000 lives, more than three times the number of U.S. military deaths in the Vietnam War. Overdose deaths continue to rise. There is no end in sight.”
  • “A handful of members of Congress, allied with the nation’s major drug distributors, prevailed upon the DEA and the Justice Department to agree to a more industry-friendly law, undermining efforts to stanch the flow of pain pills, according to an investigation by The Washington Post and ’60 Minutes.’ The DEA had opposed the effort for years.”
  • “The law was the crowning achievement of a multifaceted campaign by the drug industry to weaken aggressive DEA enforcement efforts against drug distribution companies that were supplying corrupt doctors and pharmacists who peddled narcotics to the black market. The industry worked behind the scenes with lobbyists and key members of Congress, pouring more than a million dollars into their election campaigns.”
  • “The chief advocate of the law that hobbled the DEA was Rep. Tom Marino, a Pennsylvania Republican who is now President Trump’s nominee to become the nation’s next drug czar. Marino spent years trying to move the law through Congress. It passed after Sen. Orrin G. Hatch (R-Utah) negotiated a final version with the DEA.”
  • “For years, some drug distributors were fined for repeatedly ignoring warnings from the DEA to shut down suspicious sales of hundreds of millions of pills, while they racked up billions of dollars in sales.”
  • “The new law makes it virtually impossible for the DEA to freeze suspicious narcotic shipments from the companies, according to internal agency and Justice Department documents and an independent assessment by the DEA’s chief administrative law judge in a soon-to-be-published law review article. That powerful tool had allowed the agency to immediately prevent drugs from reaching the street.”
  • “Political action committees representing the industry contributed at least $1.5 million to the 23 lawmakers who sponsored or co-sponsored four versions of the bill, including nearly $100,000 to Marino and $177,000 to Hatch. Overall, the drug industry spent $106 million lobbying Congress on the bill and other legislation between 2014 and 2016, according to lobbying reports.”

WSJ – Amazon and Big Apartment Landlords Strike Deals on Package Delivery – Laura Kusisto 10/17

  • “Amazon.com Inc. is taking over the package rooms of some of the country’s largest apartment landlords, in a move that could help consolidate its control over how goods make it from the warehouse floor to the front door.”
  • “Amazon has signed contracts with apartment owners and managers representing more than 850,000 units across the U.S. to begin installing Amazon locker systems in their buildings, according to the landlords. Amazon has commitments to install the lockers in thousands of properties, many before the peak holiday shopping season, according to a person familiar with the matter.”
  • “Several of the nation’s largest operators, AvalonBay Communities Inc., Equity Residential , Greystar and Bozzuto Group, have signed up, company executives said.
  • For several years, landlords have struggled with how to manage the mountains of packages they receive each day. Staff at larger buildings end up devoting several hours a day sorting mail, while boxes are piled in every spare cranny. Most say it is the single largest problem they face.”
  • “The locker program, dubbed Hub by Amazon, will accept packages from all carriers and not just for purchases made on Amazon. They will be open only to residents, not the wider community. Residents will receive a notification when they have a package and a code allowing them to open one of the slots.”
  • “Apartment owners pay about $10,000 to $20,000 to purchase the lockers initially and don’t pay a monthly fee. Most landlords said they don’t plan to charge residents initially but to offer it as an amenity. They could also make back some of that cost in savings on staff labor.”
  • “Karen Hollinger, vice president of corporate initiatives at AvalonBay, which has an ownership interest in about 80,000 apartments, said the average apartment community in the company’s portfolio receives some 1,000 packages a month, up from 650 a year ago. She said AvalonBay has seen a 20% to 30% annual increase in the volume of packages it receives for the past four years.”
  • “Amazon has been searching for ways to make deliveries cheaper. It has recruited a fleet of citizen drivers via its Flex program, which allows people to drop off packages from their cars. It has developed its own air and cargo networks, too.”
  • “The most expensive leg of any delivery is known as the last mile: getting a package to the doorstep. Amazon already has added lockers throughout the U.S., including an announcement that it is rolling them out at its newly acquired Whole Foods stores.”

FT – Chinese property boom props up Xi’s hopes for the economy – Tom Hancock & Gabriel Wildau 10/18

  • “As China’s Communist party elite gather in Beijing this week to select its top leaders, President Xi Jinping has benefited from the strong recent performance of the economy, which is poised for its first year-on-year acceleration in growth since 2010. On Thursday China reported that gross domestic product grew 6.8% in the third quarter, ahead of Beijing’s full-year target.”
  • “That rebound owes much to the confidence of homebuyers. Housing prices and construction starts rebounded from a slump in 2014-15, boosting overall business investment and driving demand for output from China’s huge manufacturing sector.”
  • “The property sector has been given a helping hand. Urged on by Beijing, 38% of all bank loans issued in the 12 months to August were home mortgages, according to official data, and local governments purchased 18% of all residential floor space sold last year as part of a drive to provide affordable housing, according to estimates by E-House China Research Institute.”
  • “The result has been another heady boom in construction. Rome was not built in a day, but based on residential floor area completed last year, China built the equivalent of a new Rome about every six weeks.”
  • “With the surge in housing investment has come a round of questions about a potential bubble in the market and the implications for the long-term health of China’s economy.”
  • “Some economists and investors warn that short-term growth from the latest housing boom has come at a cost: inflating a property bubble whose eventual bursting will inflict great pain. A senior Chinese legislator recently warned in unusually blunt terms that the economy has been ‘kidnapped’ by property.” 
  • “But others insist that fears of a bubble are overstated. On this view, economic fundamentals justify substantial investment in housing, especially in inland cities where development still lags far behind wealthy coastal areas. These more sanguine observers also note that outrageous price levels for Chinese apartments are mainly restricted to the megacities like Beijing and Shanghai.” 
  • “The stakes in this debate are high. Chinese residential property is arguably the world’s most important asset market. The sector drives global commodity prices, making the difference between growth and stagnation for resource exporters like Australia and Brazil.” 
  • “’It’s never wrong to express worry over China’s housing market,’ says Larry Hu, China economist for Macquarie Securities in Hong Kong. ‘But it’s interesting to consider why the housing sector has become the Bermuda Triangle for economic forecasters. So many smart people have made wrong predictions about it.’”
  • “The leading claim of the housing bears is that after a 15-year construction boom, China has built most of the housing it needs to meet fundamental demand. On this view, investors speculating on price gains, not families seeking shelter, now drive the market.”
  • “’People buy property not because they like the property, but because the price is rising,’ says Ning Zhu, professor at the Shanghai Advanced Institute of Finance and author of China’s Guaranteed Bubble. ‘It’s this panic that if they don’t buy now they will never be able to afford it.’” 
  • “Central to this narrative is the notion of ‘ghost cities’ — huge blocks of empty apartments where expected demand never materialized.” 
  • “In Mr. Xi’s speech at the opening of the congress on Wednesday, he repeated his mantra that ‘houses are for living in, not for speculation’.”
  • “Yet even in major cities, evidence suggests that there are a substantial number of empty flats held for investment purposes. A survey by FT Confidential Research, an independent research service owned by the Financial Times, found that 32% of families own at least one home that is vacant.” 
  • “An estimated 50m homes, or 22% of the total urban housing stock, were vacant in 2013, according to the most recent data from the China Household Finance Survey led by Li Gan, economics professor at Texas A&M University.” 
  • “Further underpinning the bearish outlook is the belief that fundamental demand for new housing is drying up.” 
  • “The extraordinary transformation of China’s economy over the past 40 years was driven by the migration of farmers into cities. That urbanization process is now slowing, however, as relatively few young people remain in rural China.” 
  • “The number of migrant workers living outside their home province rose by 12m in the five years through to June this year, compared with an increase of 26m in the five years ending June 2012, according to official data.” 
  • Says Mr. Xie (Andy Xie, an independent economist and former Morgan Stanley chief Asia-Pacific economist): ‘If you go into villages, there are no young and middle-aged people any more. Where is this next wave of urbanization supposed to come from?’”
  • “To longtime observers of China’s economy, the current hand-wringing over the property market feels familiar.”
  • “After two years of falling prices and sluggish sales, analysts were warning in early 2016 that some smaller cities had enough unsold inventory to last for years.” 
  • “Yet by August this year, inventories in the 80 cities tracked by E-House China Research Institute stood at their lowest level in almost five years.” 
  • “Perceptions of unreasonably high housing prices appear to be disproportionately influenced by trends in first-tier cities — Beijing, Shanghai and Shenzhen. All three rank among the world’s most expensive in terms of price-to-income ratio.” 
  • “Of the 70 cities in the official price survey, however, 12 have seen outright price falls in the three years through to August this year. In a further 29 cities, prices rose by less than 10% in the same period. Meanwhile, median per capital disposable income has grown 28% in roughly the same period.”
  • “Despite major concerns about Chinese corporate debt, household borrowing remains low by international standards at 37% of GDP, compared with 79% in the US and 59% in the euro area, according to the Bank for International Settlements. And Chinese homebuyers use less debt and more equity than counterparts in the US. The average down payment on Chinese home mortgages extended in 2016 was 40%.” 
  • “Despite their differences, both sides in the debate mostly agree that an outright crash of the housing market is unlikely. Chinese savers have few options for investing their money. The stock market is volatile, returns on bank deposits are meagre and foreign exchange controls largely prevent households from buying foreign assets. Housing is the least bad option for many investors.” 
  • “The combination of capital controls with years of monetary stimulus virtually ensures that ‘trapped cash’ will slosh through different asset classes, creating bubble-like conditions that the government either encourages or struggles to contain.” 
  • “Still, given the pain that would result from an abrupt policy shift, analysts widely expect that Beijing will continue the current approach, tightening controls when the market gets too hot, while priming it with cash when it slows too sharply.” 
  • “’The government is really losing its credibility,’ says Mr. Ning. ‘At this point everyone realizes they don’t really intend to crack down on the housing market.’”

September 18, 2017

If you were to read only one thing…

NYT – How Big Business Go Brazil Hooked on Junk Food – Andrew Jacobs and Matt Richtel 9/16

  • “A New York Times examination of corporate records, epidemiological studies and government reports — as well as interviews with scores of nutritionists and health experts around the world — reveals a sea change in the way food is produced, distributed and advertised across much of the globe. The shift, many public health experts say, is contributing to a new epidemic of diabetes and heart disease, chronic illnesses that are fed by soaring rates of obesity in places that struggled with hunger and malnutrition just a generation ago.”
  • “The new reality is captured by a single, stark fact: Across the world, more people are now obese than underweight. At the same time, scientists say, the growing availability of high-calorie, nutrient-poor foods is generating a new type of malnutrition, one in which a growing number of people are both overweight and undernourished.”
  • “Even critics of processed food acknowledge that there are multiple factors in the rise of obesity, including genetics, urbanization, growing incomes and more sedentary lives. Nestlé executives say their products have helped alleviate hunger, provided crucial nutrients, and that the company has squeezed salt, fat and sugar from thousands of items to make them healthier. But Sean Westcott, head of food research and development at Nestlé, conceded obesity has been an unexpected side effect of making inexpensive processed food more widely available.”
  • “Part of the problem, he added, is a natural tendency for people to overeat as they can afford more food. Nestlé, he said, strives to educate consumers about proper portion size and to make and market foods that balance ‘pleasure and nutrition.’”
  • “The story is as much about economics as it is nutrition. As multinational companies push deeper into the developing world, they are transforming local agriculture, spurring farmers to abandon subsistence crops in favor of cash commodities like sugar cane, corn and soybeans — the building blocks for many industrial food products. It is this economic ecosystem that pulls in mom-and-pop stores, big box retailers, food manufacturers and distributors, and small vendors like Mrs. da Silva.”
  • “In places as distant as China, South Africa and Colombia, the rising clout of big food companies also translates into political influence, stymieing public health officials seeking soda taxes or legislation aimed at curbing the health impacts of processed food.”
  • “For a growing number of nutritionists, the obesity epidemic is inextricably linked to the sales of packaged foods, which grew 25% worldwide from 2011 to 2016, compared with 10% in the United States, according to Euromonitor, a market research firm. An even starker shift took place with carbonated soft drinks; sales in Latin America have doubled since 2000, overtaking sales in North America in 2013, the World Health Organization reported.”
  • “The same trends are mirrored with fast food, which grew 30% worldwide from 2011 to 2016, compared with 21% in the United States, according to Euromonitor. Take, for example, Domino’s Pizza, which in 2016 added 1,281 stores — one ‘every seven hours,’ noted its annual report — all but 171 of them overseas.”
  • “Industry defenders say that processed foods are essential to feed a growing, urbanizing world of people, many of them with rising incomes, demanding convenience.”
  • “’We’re not going to get rid of all factories and go back to growing all grain. It’s nonsense. It’s not going to work,’ said Mike Gibney, a professor emeritus of food and health at University College Dublin and a consultant to Nestlé. ‘If I ask 100 Brazilian families to stop eating processed food, I have to ask myself: What will they eat? Who will feed them? How much will it cost?’”
  • “In many ways, Brazil is a microcosm of how growing incomes and government policies have led to longer, better lives and largely eradicated hunger. But now the country faces a stark new nutrition challenge: over the last decade, the country’s obesity rate has nearly doubled to 20%, and the portion of people who are overweight has nearly tripled to 58%. Each year, 300,000 people are diagnosed with Type II diabetes, a condition with strong links to obesity.”
  • “’What we have is a war between two food systems, a traditional diet of real food once produced by the farmers around you and the producers of ultra-processed food designed to be over-consumed and which in some cases are addictive,’ said Carlos A. Monteiro, a professor of nutrition and public health at the University of São Paulo.”
  • “’It’s a war,’ he said, ‘but one food system has disproportionately more power than the other.’”
  • “Nearly 9% of Brazilian children were obese in 2015, more than a 270% increase since 1980, according to a recent study by the Institute for Health Metrics and Evaluation at the University of Washington. That puts it in striking distance of the United States, where 12.7% of children were obese in 2015.”

Worthy Insights / Opinion Pieces / Advice

FT – Tech companies in the city: the backlash – Leslie Hook 9/14

  • “Cities and big tech companies usually do not get along very well. Just look at San Francisco or Seattle — many locals love nothing more than a good gripe against Google or Uber or Amazon.”
  • “It’s been curious, then, to watch cities rush forward after Amazon said it was looking for a site to build a second headquarters in North America. Mayors from Pittsburgh to Chicago to Memphis have jumped on Twitter and on the phone to woo Amazon, promising their constituents they will work hard to win the company’s favor.”

Markets / Economy

FT – How Apple and co became some of America’s largest debt collectors – Eric Platt, Alexandra Scaggs and Nicole Bullock 9/15

Finance

NYT – China Bitcoin Exchange to Stop Trading Virtual Currencies Amid Crackdown – Cao Li 9/14

  • “A major Chinese exchange specializing in the trading of Bitcoin announced on Thursday that it would stop trading by the end of the month, amid a broader crackdown against virtual currencies by the authorities in Beijing.”
  • “The announcement by BTC China, the country’s first and largest digital currency exchange, came days after the Chinese authorities banned fund-raising for new digital currencies, and amid worries that regulators would tighten rules surrounding currencies like Bitcoin.”
  • “The exchange’s decision is the first of its kind in China, and it raises the specter of other exchanges shutting down Bitcoin trading in the future.”
  • “The price of Bitcoin dropped more than 10% on Thursday, to around $3,500, in the hours after the announcement.”

Bloomberg – The Summer of Bitcoin Ends Badly – Ogla Kharif and Belinda Cao 9/15

Australia

WSJ – Australian Banks Could Finally Head Down Under – Jacky Wong 9/15

  • “Investors have been calling the Australian housing market a “bubble” for years, yet prices keep charting higher. The market, though, could finally be about to turn south. That won’t be pretty for the country’s banks.”
  • “The property market has been skyrocketing Down Under—prices in Sydney have gone up 80% since 2012 while in Melbourne they have gained 54%. In turn, houses have become unaffordable for many Australians as prices keep outpacing income growth. An average home in Sydney now costs more than 12 times the median income there, according to research firm Demographia.”
  • “To keep houses within the reach of buyers, banks seem to have loosened their lending standards. Home lending is big business for Australian banks—more than half of their loan books consist of residential mortgages, amounting to $1.2 trillion, a figure that has risen 47% in the past five years. Analysts say much of this new lending has been dubious: Around a third of Australian mortgage applications contain inaccurate information, resulting in around $400 billion of so-called Liar Loans, according to UBS.“
  • “Nearly 40% of outstanding home loans are interest-only. The risk is that borrowers will be unable to repay these loans once their interest-only period expires.”
  • “This is fine as long as the property market keeps going up, as homeowners can sell their houses to cover loan repayments. Once the market stops rising, though, it will become much harder for stretched households to avoid problems.”
  • “Australian regulators are trying to cool the property market, by reining in the use of interest-only loans. But they face another difficulty. Tightened capital controls in China have dampened property demand in Australia, previously a popular venue for Chinese buyers. Direct overseas property investment from China plunged 82% in the first half globally, according to Morgan Stanley , with investors there finding it harder to get their money out of the country.”

South America

WSJ – Daily Shot: Venezuela Econ – Black Market Bolivares to USD exchange rate 9/15

August 31, 2017

Perspective

FT – Taxpayers face lion’s share of $50bn storm Harvey bill – Alistair Gray 8/30

  • “Tropical storm Harvey is shaping up to be one of the three costliest natural disasters in modern US history.”
  • “As the system encircles the devastated region for a sixth consecutive day, some forecasters warn it may prove even more financially ruinous than superstorm Sandy and be topped only by Hurricane Katrina.”
  • “This time, however, the insurance industry — traditionally the backstop in tough times — is expected to avoid picking up much of the tab as many householders lack cover for flooding. Taxpayers are likely to cover a big chunk of the loss, but how much support the state will provide is far from clear.”
  • “Gary Martucci, director at the rating agency Standard & Poor’s, described the storm as ‘unique’ in that it released so much rainfall while its winds caused a small proportion of the devastation. Flood damage is particularly difficult to assess, not least because it makes it harder for loss adjusters to access stricken properties.”
  • “Many homeowners will not, in any case, be covered as standard US home insurance policies exclude flood damage. For decades the industry has been unprepared to underwrite flood risk because of the potential for catastrophic losses.”
  • “Householders can get cover from a government-backed scheme, the National Flood Insurance Program (NFIP), but only about one in six properties in the county in which Houston is located has the protection, according to Larry Greenberg, insurance analyst at Janney Montgomery.”
  • “Lawyers predict protracted disputes over insurance coverage — on issues ranging from the definition of flood damage to whether or not a property was rendered inaccessible.”
  • “Mr. Pasich (Kirk Pasich, attorney), who represents corporate policyholders, expects battles for years to come. ‘Some of the litigation that came out of Katrina is still going on,’ he said.”

Worthy Insights / Opinion Pieces / Advice

Bloomberg – Kushners’ China Deal Flop Was Part of Much Bigger Hunt for Cash – David Kocieniewski and Caleb Melby 8/31

MarketWatch – Amazon is actually the weakest of the big U.S. retailers, Moody’s says – Ciara Linnane 8/31

  • “The perception that as soon as Amazon enters a product category, it immediately wins is also flawed, said the analyst. While Amazon is clearly disruptive, it does not dominate any category in which it operates.”
  • Well maybe not ‘any’…very few companies have figured out the hype game so well (except for maybe Tesla and Bitcoin).

Project Syndicate – Odious Ratings for Public Debt – Ricardo Hausmann and Ugo Panizza 8/30

Markets / Economy

WSJ – Daily Shot: ADP – US Job Creation by Category 8/31

Real Estate

FT – Harvey floods prompt alert on risk of mortgage bond defaults – Joe Rennison 8/30

  • “Tropical storm Harvey has put up to $30bn of securitized commercial mortgages on the watch list of analysts and investors, as damage from the disaster has heightened the risk of defaults.”
  • “Morningstar Credit Ratings said 1,529 properties, with an outstanding mortgage balance of $19.4bn could be affected. The majority of the properties are in Harris County, which has suffered from severe floods since Harvey hit Texas as a hurricane on Friday.”
  • “Data company Trepp cast a wider geographical net and put the universe of affected loans at a larger $29.6bn across 2,200 properties.”
  • “Fitch Ratings estimates $10.4bn of loans in bonds it has provided credit ratings to could be impaired.”
  • “’The storm could add long-term uncertainty to the performance of the properties if homes are damaged and residents . . . are unable to move back promptly,’ Fitch said.”
  • “The risk centers on properties that may be uninsured against flood. The widespread impact of the hurricane means that properties outside traditional flood zones could be affected, said analysts. Other risks include the possibility that flooding may have left undamaged properties stranded. For example, a hotel may be open but if people cannot reach it, then it will suffer.”
  • “But Mr. Clancy (Manus Clancy, head of research at Trepp) added that damage from previous storms, such as from Hurricane Katrina or Hurricane Sandy, had resulted in little knock-on effect to commercial mortgage-backed securities. Traders and analysts said there had been little noticeable effect in markets, with bonds trading without impairment on Wednesday.”
  • “’The market has not reacted in a way to assume assets will be written off,’ said Mr Clancy. ‘People want to know their Houston exposure but they are expecting there will be enough insurance proceeds to cover the value of the bonds.’”

FT – ‘Nonprime has a nice ring to it’: the return of the high-risk mortgage – Ben McLannahan 8/30

Energy

FT – Storm Harvey exposes Achilles heel for global energy market – Gregory Meyer and Jude Webber 8/31

  • “’It’s a major event. It’s going to impact both domestic and world markets,’ says John Auers, executive vice-president at Turner Mason, a consultancy.”
  • “The shale drilling boom catapulted the US into the top tier of oil and gas producers in the past decade. Refineries clustered in Texas and Louisiana have expanded and now export about 4m barrels per day of refined fuel overseas.”
  • “The US’s new status as an energy powerhouse has created a more flexible, diverse, and arguably resilient world fuel market.”
  • “But Harvey is exposing an Achilles heel: the concentration of US energy assets in a low-lying, hurricane-prone coastal corridor makes the world more exposed to local weather.”
  • “The immediate effects of the storm have been to knock out more than 3m barrels per day of oil refining capacity, or 16% of the US total, according to S&P Global Platts. Among the refineries to close was the nation’s largest, Motiva in Port Arthur, Texas, where nearly four feet of rain fell.”
  • “’There are huge amounts of US products that are not being delivered,’ says Olivier Jakob of Petromatrix, a Swiss-based consultancy. ‘The US is exporting so much compared to before, this is a major disruption for world oil flows.’”
  • “The Gulf’s energy industry may well recover quickly from Harvey, but the Atlantic hurricane season has months to go. On Thursday a storm named Irma was forecast to blow into the Caribbean as a major hurricane.”

FT – European fuel armada heads for US after tropical storm Harvey – David Sheppard 8/30

  • “A flotilla of European fuel tankers is preparing to sail to the US in the wake of tropical storm Harvey, as oil traders rush to replace supplies of petrol knocked out by the worst storm to hit Texas in 50 years.”
  • “Shipbrokers in London said almost 40 cargoes of petrol had been booked or were being negotiated so far this week, well up on the usual volume, and traders were asking for flexibility to deliver either to the Atlantic seaboard or the Gulf Coast depending on when ports may reopen.”
  • “Tanker earnings for the transatlantic route, a proxy for demand, have soared almost six-fold in the past week, shipbrokers said, rising to more than $20,000 a day for the benchmark voyage, from $3,500 a week ago. The total number of shipments could still change because not all voyages are arranged through brokers, and some still being discussed may not be finalized. About 25 have already been fixed or are expected to be in the coming days.”

Finance

WSJ – Daily Shot: S&P Global Market Intelligence – BB/BB- Spreads 8/31

WSJ – Daily Shot: S&P Global Market Intelligence – B+/B Spreads 8/31

WSJ – Daily Shot: S&P Global Market Intelligence – Debt Buyers 8/31

  • “This chart shows banks pulling out of corporate leveraged loans, as institutions (such as BDCs, CLOs, credit funds, hedge funds, etc.) pile into the market.”

China

Bloomberg – China’s $2 Trillion of Shadow Lending Throws Focus on Rust Belt – Jun Luo and Alfred Liu 8/29

  • “By analyzing 237 Chinese banks, many of them small and unlisted regional lenders, Bedford casts a new spotlight on underground financing and the risks it poses to the nation’s $35 trillion banking industry. Shadow loans grew almost 15 percent to 14.1 trillion yuan ($2.3 trillion) by December from a year earlier, equal to about 19% of economic output, he estimates.”
  • “’This is a sleeper issue,’ Bedford wrote. ‘The remarkable level of concentration in regional banks in rust-belt region banks, combined with evidence that these assets are increasingly being used to roll over loans to existing borrowers as well as being swapped between banks without a clear transfer of risk are alarming.’”
  • “Accounting for this financing, Chinese banks’ nonperforming loans could be three times higher than the official published level, he said.”
  • “By recording such lending under ‘investment receivables’ rather than ‘loans’ on their financial statements, banks were able to disguise what is in effect lending, to get around regulatory lending curbs or heavy reliance on wholesale funding. Such financial engineering also enabled some lenders to overstate their capital adequacy ratios, understate nonperforming loans and reduce provision charges.”

June 23, 2017

Perspective

WSJ – Wal-Mart to Vendors: Get Off Amazon’s Cloud – Jay Greene and Laura Stevens 6/21

  • “To do business with Wal-Mart, the retailer requires some tech providers to build the services on AWS cloud rivals.”

WSJ – Daily Shot: Brookings – Midlife mortality from “deaths of despair” 6/22

Worthy Insights / Opinion Pieces / Advice

FT – Inevitable Chinese slowdown ‘a myth’ – Steve Johnson 6/21

  • Essentially, there is precedence when looking at China’s Asian neighbors that would provide examples why the country has room to run. However, the credit boom of late is still a major concern.

FT – China has no choice but to walk financial tightrope – Diana Choyleva 6/21

  • “The warning signs of significant financial distress have grown in tandem with a surge in interbank borrowing and lending over the past couple of years. The strains have intensified since Beijing’s leaders made it clear in late 2016 that they were determined to rein in runaway debt and started nudging up money market rates as well as cracking down on nefarious shadow banking activities.”
  • “The risk of contagion is a key reason why China’s regulators are striving to rein in Wealth Management Products (WMPs), which totaled Rmb30tn at the end of April. The complex structure of WMPs typically yokes together any number of banks and NBFIs, which are now the largest borrowers on the interbank market.”
  • “Beijing is especially wary of banks allocating cash raised through WMPs to external asset managers. City commercial banks, which depend heavily on WMPs for funding, are particular enthusiasts of these ‘entrusted investments’, which totaled more than Rmb5tn at the end of 2016.”
  • “Regulators have taken aim at entrusted investments because they hide further layers of leverage and obscure the ultimate borrower. In recent weeks, the China Banking Regulatory Commission, under new chairman Guo Shuqing, has issued a flurry of directives to haul banks back into line. Banks have responded by pulling back their cash from the capital markets, increasing the very strains that the regulators want to avert.”
  • “A looming shake-out in the young, burgeoning interbank market for negotiable certificates of deposit (NCDs) could intensify a cash crunch. Regulators recently required banks to count NCDs as part of their lending and borrowing totals, dimming their attraction. More than 60% of outstanding NCDs will mature over the next four months, a big headache for those banks that rely on this source of funding.”
  • “Banks are not the only weak link. Insurance companies are net interbank lenders, but the breakneck expansion of some insurers is fanning concerns. China’s insurance regulator, worried about the risk of mismatched maturities, has clamped down on so-called universal life insurance policies, which are thinly disguised WMPs.”

Energy

WSJ – Daily Shot: BMI Research – U.S. Shale Output 6/22

WSJ – Daily Shot: GasBuddy – U.S. Average Retail Gas Price Chart 6/22

  • “It’s worth noting that despite these sharp declines in crude futures, US gasoline prices at the pump have barely budged.”

Environment / Science

NYT – 95-Degree Days: How Extreme Heat Could Spread Across the World – Brad Plumer and Nadja Popovich 6/22

China

FT – Alibaba taps user data to drive growth spurt – Louise Lucas 6/21

  • Data, data, data. The more I know about your customers, the more you’re willing to pay me to broker transactions. And the more I know about you (consumer), the better able I am to match you (sell you) with products you’d want.

FT – Big China companies targeted over ‘systemic risk’ – Lucy Hornby, Yuan Yang, Gabriel Wildau 6/22

  • “This is a game changer for Chinese M&A and could pretty much stop all outbound deal making in its tracks.” – Keith Pogson, EY’s senior partner for financial services in Asia.

June 9, 2017

If you were to read only one thing…

FT – Amazon to ramp up lending in challenge to big banks – Ben McLannahan 6/7

  • “Amazon is planning to expand its lending to small businesses in the US, the UK and Japan, in a direct challenge to the big banks which have historically dominated.”
  • “The Seattle-based company launched Amazon Lending with little fanfare six years ago, offering select sellers on its platform instant loans for up to 12 months at annual interest rates ranging from about 6 to 17%.”
  • “Now, having done about $3bn of originations in total and $1bn within the past year, Amazon is expanding offers to more of the 2m or so businesses on its ‘marketplace’ platform. Such independent sellers — many of which pay Amazon to store, package and ship merchandise to customers on their behalf — account for about half of Amazon’s total units sold worldwide.”
  • “Amazon supplies funds from its own balance sheet within 24 hours, then deducts loan payments every two weeks automatically from the seller’s account. If the account runs dry, or if sales suddenly dip, Amazon can put a freeze on any merchandise held in its warehouses until the seller pays up.”
  • “’It’s a ‘can’t lose’ proposition for Amazon,’ said Jordan Malik, a Las Vegas-based publisher, noting that the company has a near-perfect view of any seller’s cash flows. ‘It’s a very clever thing they’ve done.’”

FT – Tech companies invade banks’ territory with customer loans – Ben McLannahan 6/7

Perspective

NYT – Venezuelan Exiles in Miami Turn to Public Shaming of Maduro Supporters – Lizette Alvarez 6/7

FT – Is it finally time for a pay rise for American workers? – Sam Fleming 6/7

Worthy Insights / Opinion Pieces / Advice

Bloomberg View – It’s Not Just Retail That’s Changing. It’s Us. – Barry Ritholtz 6/7

Markets / Economy

FT – Streaming revenue to surpass physical music sales this year – Shannon Bond 6/6

WSJ – Daily Shot: Banco Popular CoCo debt 6/8

FT – Streaming revenue to surpass physical music sales this year – Shannon Bond 6/6

Real Estate

National Real Estate Investor – Are Investors Ready to Return to Non-Listed REITs? – Beth Mattson-Teig 6/7

WSJ – Daily Shot: John Burns Real Estate Consulting – US Home Prices 6/8

  • “With wage growth remaining tepid, this estimate suggests that homes are overvalued (in part due to low mortgage rates).”

WSJ – New Houses Get Smaller as First-Time Buyers Move Into the Market – Jeffrey Sparshott 6/5

  • “The median size of a new single-family home slipped by a scant 2% to 2,422 square feet in 2016, according to Census Bureau data released last week. While that’s a small adjustment, it’s the first time since 2009 and only the third time in the last 20 years it’s fallen.”

Energy

Bloomberg – Iraqi Oil Floods Into U.S. After Saudi Arabia Cuts Back – David Marino 6/7

South America

Bloomberg – No One Has Ever Made a Corruption Machine Like This One – Michael Smith, Sabrina Valle, and Blake Schmidt 6/8

  • “Year after year… 0.5% to 2% of revenue was directed to illicit payoffs, mainly to Brazilian politicians and executives of state companies, particularly the national oil producer, Petrobas. Some years graft expenses neared 2 billion reais ($611 million). It just depended on the demands of Odebrecht’s political contacts.”

Other Links

Ancestry.com – What’s the Most Popular Surname in Your State?

May 16, 2017

If you were to read only one thing…

WSJ – China’s Debt Addiction Will Be Hard to Cure – Anjani Trivedi 5/15

  • “China is attempting cure itself of an addiction to debt. The problem is, that could just stoke yet more demand.”
  • “Take local-government debt, one of the biggest contributors to the overall growth in debt in recent years. A major concern has been off-balance-sheet ‘local-government financing vehicles,’ whose debt now represents around 10% of China’s $8 trillion bond market.”
  • “The money raised is supposed to finance infrastructure projects and the like. But much of it—around half, according to Wind Info—has been put to unproductive uses like paying down old debt and keeping moribund local companies alive. The debt is often issued in the guise of corporate bonds, and can be bought by banks.”
  • “Beijing is now trying to rein in the financing vehicles’ voracious debt appetite. Though the debt isn’t recorded on local governments’ books, there’s little doubt they will be on the hook if defaults start growing. As of 2016, local-government debt totaled 33 trillion yuan ($4.782 trillion), of which UBS analysts estimate a third is implicit or hidden liabilities.”
  • “Earlier this month, authorities issued a directive restricting local governments from guaranteeing debt issued by these financing vehicles and other public-private partnerships. It also prohibited injecting public assets such as land into these vehicles to improve their credit quality.”
  • “So far, so sensible. The problem is the likely cost in overall economic growth, a point China’s central bank acknowledged in its quarterly report this weekend. While bursting this particular debt balloon could reduce the amount of money being misused, it could also stymie genuine investment. Depending on how thoroughly the new directive is executed, it could drain 2 trillion yuan of infrastructure financing this year, according to UBS analysts, and leave local governments with a financing gap exceeding 1 trillion yuan. That’s more than 10% of annual infrastructure investment in China.”
  • “The last time Beijing tried to reduce this kind of debt—in 2014—the knock-on effect on investment and growth was so severe that it soon backed down: Issuance bounced back to record highs just months later.”

Perspective

WSJ – Amazon’s IPO at 20: That Amazing Return You Didn’t Earn – Steven Russolillo 5/14

  • “A $10,000 investment in Amazon.com Inc. 20 years ago would be worth $4.9 million today. Good luck finding an Amazon investor who can brag about a return like that.”
  • “Monday is the 20th anniversary of Amazon’s initial public offering. Its vertiginous stock chart is a reflection of the internet giant’s dominance. Shares have gone from under $2 on a split-adjusted basis to $961.35 at Friday’s close. The 36% compounded annual gain by buying Amazon at its first-day closing price earned an investor 155 times what would have been made in the S&P 500, including dividends. At $460 billion, Amazon now sports the fourth-largest market capitalization in the S&P 500.”
  • “’This massive outperformance has led to an explosion in hindsight bias, with investors fooling themselves into believing Amazon’s ascent was somehow obvious or inevitable,’ writes Michael Batnick, director of research at Ritholtz Wealth Management and author of the popular ‘Irrelevant Investor’ blog. ‘You had to be some sort of sociopath, void of any human emotions, to earn these monstrous gains.’”
  • “History shows stock investors regularly underperform the market’s returns. Volatility often triggers irrational behavior when investors almost always would fare better by ignoring the noise. Similar patterns are only exacerbated when focusing on individual securities.”
  • “As Mr. Batnick points out, Amazon shares have had daily declines of 6% 199 times. The stock has fallen 15% over a three-day span on 107 different occasions. And the damage was far worse over longer time horizons.”
  • “Amazon has suffered at least 20% pullbacks in 16 of its 20 years on the public markets. The drawdowns were more than 40% apiece in nearly half of those instances, including a 64% plunge in 2008 during the depths of the financial crisis. Worst of all, shares lost 95% of their value when the tech bubble burst from December 1999 through October 2001.”
  • “Most investors just couldn’t ride that out.”

Worthy Insights / Opinion Pieces / Advice

Zero Hedge – Hedge Fund CIO: “This Is Unprecedented… No Trader Has A Model For This” – Tyler Durden 5/14

  • “’Everyone buying assets today is building somewhat plausible arguments, but they’re really all just geared to decisions made in Beijing.’” – Eric Peters, CIO of One River Asset Management
  • “The most crowded trade in the world is cognitive dissonance on China. ‘We need persistent increases in debt relative to GDP for the world economy to function. And since 2011, 100% of global non-financial private-sector net credit creation has occurred in China. Across the western world, it’s been zero.’ Since 2008, non-financial private-sector credit has risen 20% per year in China. In the west, net credit creation occurred through rising government debt – but for that fact, our economies would’ve suffered profoundly. Instead, global asset and liability levels have grown inexorably, led by Chinese credit creation.”
  • “’At 20% annual credit growth, China’s asset (and liability) base doubles every 3.5 years.‘ Seven years ago China’s asset base was roughly $15tn. Then it doubled. And doubled again.”
  • “’China’s asset base today is roughly $60tn, on its way to $120tn sometime in 2020,’ he laughed, his spreadsheet sprouting trees, racing to the sky. ‘The US asset base is $90tn. They’ll pass us in 2yrs. When we were $60tn, China was $10tn.’”
  • “‘People believe they’re leveraged to all of these wonderful things happening in the world. But they’re simply leveraged to what happens in China.’”
  • “Oil prices, iron ore, copper, real estate, and today’s global cyclical recovery are all directly tied back to China. And this can all continue for a time. Or end abruptly.”
  • “’What makes this so difficult to model is that this’ll be the first cycle that ends based on decisions made in Beijing, not Washington or Frankfurt.’”

Markets / Economy

WSJ – How Big Are Mutual Funds’ Puerto Rico Losses? $5.4 Billion – Heather Gillers and Tom McGinty 5/14

  • “Those losses, which are both actual and unrealized, were tucked inside a wide range of funds managed by Franklin Resources Inc., OppenheimerFunds Inc., Vanguard Group, Goldman Sachs Asset Management, Western Asset Management Co., Lord, Abbett & Co., AllianceBernstein Holding LP and Dreyfus Corp., which is part of BNY Mellon Investment Management.”
  • The two companies with the largest losses are Oppenheimer and Franklin with losses as much as $2.1bn and $1.6bn respectively.

Real Estate

NYT – Real Estate’s New Normal: Homeowners Staying Put – Conor Dougherty 5/14

  • “‘Once mortgage rates climb to 5 or 5.5%, we are going to start to see the lock-in effect really take hold,’ said Svenja Gudell, chief economist at Zillow.”

WSJ – Daily Shot: Bloomberg – US Apartment Sales Volume 5/15

China

FT – China real estate investment rises as sales slowdown drags on – Hudson Lockett 5/14