Tag: Anbang

August 11, 2017

Perspective

FT – The long and winding road to economic recovery – Claire Manibog and Stephen Foley 8/9

Data Is Beautiful – City maps from Airbnb location ratings – txafer 8/9

Worthy Insights / Opinion Pieces / Advice

Bason Asset Management – Shame, Status and The American Dream – James Osborne 7/24

  • Sometimes less is more.

Bloomberg View – Canada’s Housing Bubble Will Burst – Ben Carlson 6/21

  • “The U.S. housing market peaked in late 2006. Since then, based on this index, U.S. housing prices are still down almost 13% from their peak through the end of 2016. In that same time frame, Canadian housing prices are up 56%.”
  • “From the 2006 peak, it took until late 2012 for real estate in the U.S. to bottom. We’ve since witnessed a 19% recovery from what was a 27% decline nationwide, on average. While the U.S. real estate downturn lasted almost six years, Canada’s housing market experienced just a 7% drawdown that lasted less than a year. And house prices in Canada reclaimed those losses in about a year and a half. Canadian housing has also outpaced its neighbors to the south since the 2012 bottom in U.S. real estate, with a 30% gain in that time.”
  • “To recap: On a real basis, Canadian housing prices experienced a much smaller, shorter decrease in prices during the financial crisis and a much larger, longer increase in prices during the recovery. When you couple this unfathomable rise in housing prices with near-record high household debt-to-income ratios, the Canadian housing bubble starts to look scary should the tide turn.”

Business Insider – Maverick Capital, a $10.5 billion hedge fund, is struggling to make money – Rachael Levy 8/9

  • “The proliferation of capital focused on non-fundamental factors confuses short-term stock price responses, causing investors to question links between price and fundamentals. Flows into instruments that allocate capital through predetermined ratios without regard to current or future fundamentals distort prices in the short term, but such distortions create wonderful opportunities that fundamental investors should be able capitalize upon over a longer-term timeframe.” – Lee Ainslie, Maverick Capital

Markets / Economy

WSJ – Daily Shot: Retailer Stock Market Valuations 8/10

WSJ – Daily Shot: Comex Copper Inventory (short ton) 8/9

  • “The COMEX copper inventories have risen significantly lately. It suggests that perhaps the copper market isn’t as tight as the recent rally may indicate.”

WSJ – Do Businesses Need Foreign Workers? Martha’s Vineyard Is Finding Out – Laura Meckler 8/10

  • “Jamaicans and other foreign workers have long powered the summer economy in the upscale tourist haven of Martha’s Vineyard, cleaning hotel rooms, waiting tables and mixing fudge. This year, many local businesses had to come up with a Plan B.”
  • “Facing a shortage of foreign laborers, local restaurants have reduced hours of operation and pared back menus. Managers are cleaning hotel rooms, laundry is piling up and at least one restaurant is using disposable cups to ease the dishwashers’ load.”
  • “The problem is a scarcity of the H-2B visas used to bring foreign seasonal workers to the U.S. It has affected many resorts and other businesses that depend on such workers, including Alaskan fisheries. Isolated locations such as Martha’s Vineyard—it has a tiny year-round population and is accessible only by ferry or plane—are especially vulnerable.”

WSJ – Dairies’ Fix for Souring Milk Sales: Genetics and Bananas – Mike Cherney and Heather Haddon 8/9

Britain

Economist – How to solve Britain’s housing crisis – 8/3

  • This prescription applies to many other places besides Britain.
  • “What makes Britain’s housing squeeze maddening is that, unlike many other problems, something can easily be done about it. Britain needs to get building. The consensus is that, to keep prices in check, it must put up 300,000 houses a year, double what it erected in 2015-16.”

China

FT – Chinese top official warns economy ‘kidnapped’ by property bubble – Gabriel Wildau 8/10

  • “A top Chinese lawmaker has warned that profiteering by real estate developers is sapping the lifeblood from China’s economy, as authorities make efforts to contain runaway property prices.”
  • “The real estate industry’s excessive prosperity has not only kidnapped local governments but also kidnapped financial institutions — restraining and even harming the development of the real economy, inflating asset bubbles and accumulating debt risk. The biggest problem currently facing the country is how to reduce reliance on real estate.” Yin Zhongqing, deputy director of the finance and economics committee of the National People’s Congress

FT – China targets mobile payments oligopoly with clearing mandate – Gabriel Wildau 8/9

  • Apple is not the only company that must yield to China.
  • “China’s central bank has ordered online payment groups to operate through a centralized clearing house, a move likely to undercut the dominance of Ant Financial and Tencent by forcing them to share valuable transaction data with competitors.”
  • “China is the world leader in mobile payments, with transaction volumes rising nearly fivefold last year to Rmb59tn ($8.8tn), according to iResearch. They are now widely used for everything from high-street shopping to peer-to-peer lending.” 
  • “In addition to generating fees directly, online and mobile payments are a source of valuable data that can be used for such purposes as targeted advertising and credit scoring.” 
  • “Now the People’s Bank of China is requiring all third-party payment companies to channel payments through a new clearing house by next June, according to a document sent to payment companies on August 4 and seen by the Financial Times.” 

FT – Chinese crackdown on dealmakers reflects Xi power play – Lucy Hornby 8/9

  • President Xi, the master of the long game.
  • “For China’s ruling Communist party, its foreign exchange reserves are a symbol of national strength and are a crucial buffer against economic shocks. So the alarming announcement that forex reserves had fallen below $3tn in January marked a shift in political fault lines that is only being felt this summer.”
  • “As more than $1tn left the country over the previous 18 months amid a flurry of large overseas acquisitions, a sense of crisis grew within the party.”
  • “Technocrats in Beijing had already prepared the ground to take action. In December, they had managed to link the phrase ‘national security’ to the concept of financial risk at the annual agenda-setting economic work conference. Backed with the reserves figures, they were poised to strike against what they saw as the leading culprit — the new generation of highly acquisitive private Chinese companies.”
  • “These tensions within the system have exploded into the open in the past two months with the humiliation of some of China’s best-known and most well-connected private companies, which in recent years have acquired high-profile foreign assets such as New York’s Waldorf Astoria Hotel and French leisure company Club Med.”
  • “In an abrupt turn, a group of businessmen once lauded as the international face of China are now derided in state media as the instruments of systemic financial risk. The private sector has been shaken by leaked documents, smears and the detention of China’s brashest businessman.”

NYT – A Missing Tycoon’s Links to China’s Troubled Dalian Wanda – Michael Forsythe 8/10

FT – Dalian Wanda reshuffles $1bn of assets – Emily Feng 8/10

Bloomberg – China Is Taking On the ‘Original Sin’ of Its Mountain of Debt – Emma O’Brien, Eric Lam, Adrian Leung, Jun Luo, Jing Zhao, Helen Sun, Xize Kang, and Vicky Wei 8/8

Economist – China tries to keep foreign rubbish out – 8/3

  • “China dominates international trade in many goods, but few more than waste for recycling. It sucked in more than half the world’s exports of scrap copper and waste paper in 2016, and half of its used plastic. All in all, China spent over $18bn on imports of rubbish last year. America, meanwhile, is an eager supplier. In 2016 nearly a quarter of America’s biggest exporters by volume were recyclers of paper, plastic or metal. Topping the list was America Chung Nam, a California-based supplier of waste paper which last year exported a whopping 333,900 containers, almost all of them to China.”
  • “This may soon change. On July 18th China told the World Trade Organization that by the end of the year, it will no longer accept imports of 24 categories of solid waste as part of a government campaign against yang laji or ‘foreign garbage’. The Ministry of Environmental Protection says restricting such imports will protect the environment and improve public health. But the proposed import ban will disrupt billions of dollars in trade. Recyclers worry that other categories of waste may soon receive the same treatment.”

August 1, 2017

Perspective

FT – Apple removes apps that bypass China’s censors – Hannah Kuchler and Max Seddon 7/30

  • “Apple has removed from its Chinese app store applications that enable users to bypass China’s ‘Great Firewall’, in a move that developers have condemned as ‘censorship’.”
  • “The Silicon Valley company has withdrawn virtual private network (VPN) apps from the store, as it pulls all software that do not comply with local law, even if the makers are based outside the country.”
  • “VPNs allow users to access content banned by Chinese censors to control access to information online. This has, in effect, created a ‘Chinese internet’, without many western social media or search engine sites.”

Project Syndicate – Venezuela’s Unprecedented Collapse – Ricardo Hausmann 7/31

  • “In a hastily organized plebiscite on July 16, held under the auspices of the opposition-controlled National Assembly to reject President Nicolás Maduro’s call for a National Constituent Assembly, more than 720,000 Venezuelans voted abroad. In the 2013 presidential election, only 62,311 did. Four days before the referendum, 2,117 aspirants took Chile’s medical licensing exam, of which almost 800 were Venezuelans. And on July 22, when the border with Colombia was reopened, 35,000 Venezuelans crossed the narrow bridge between the two countries to buy food and medicines.”
  • “Venezuelans clearly want out – and it’s not hard to see why.”
  • “But is this just another bad run-of-the-mill recession or something more serious?”
  • “The most frequently used indicator to compare recessions is GDP. According to the International Monetary Fund, Venezuela’s GDP in 2017 is 35% below 2013 levels, or 40% in per capita terms. That is a significantly sharper contraction than during the 1929-1933 Great Depression in the United States, when US GDP is estimated to have fallen 28%. It is slightly bigger than the decline in Russia (1990-1994), Cuba (1989-1993), and Albania (1989-1993), but smaller than that experienced by other former Soviet States at the time of transition, such as Georgia, Tajikistan, Azerbaijan, Armenia, and Ukraine, or war-torn countries such as Liberia (1993), Libya (2011), Rwanda (1994), Iran (1981), and, most recently, South Sudan.”
  • “Put another way, Venezuela’s economic catastrophe dwarfs any in the history of the US, Western Europe, or the rest of Latin America. And yet these numbers grossly understate the magnitude of the collapse…”
  • “Inevitably, living standards have collapsed as well. The minimum wage – which in Venezuela is also the income of the median worker, owing to the large share of minimum-wage earners – declined by 75% (in constant prices) from May 2012 to May 2017. Measured in dollars at the black-market exchange rate, it declined by 88%, from $295 per month to just $36.”
  • “Measured in the cheapest available calorie, the minimum wage declined from 52,854 calories per day to just 7,005 during the same period, a decline of 86.7% and insufficient to feed a family of five, assuming that all the income is spent to buy the cheapest calorie. With their minimum wage, Venezuelans could buy less than a fifth of the food that traditionally poorer Colombians could buy with theirs.”

Worthy Insights / Opinion Pieces / Advice

WSJ – Could Football Ever End? – Jason Gay 7/30

  • “A new concussion study provokes more existential worry in the NFL – and, reportedly, an early retirement.”

FT – With oil prices, half a step is not enough – Nick Butler 7/30

  • Saudi Arabia’s additional production curbs are a step in the right direction, but there are just too many other producers that they don’t control.

Markets / Economy

WSJ – Daily Shot: FRED – Velocity of M2 Money Stock 7/31

Real Estate

WSJ – Supermarkets Face a Growing Problem: Too Much Space – Heather Haddon and Julie Jargon 7/31

  • “A massive build-out by retailers has left the country piled up with grocery shelves as consumers are shifting from big weekly shopping trips to more snacking and to-go meals. The mismatch has flattened retail sales and leaves the industry vulnerable to a wave of closures that some executives, bankers and industry experts think is coming soon.”
  • “Commercial square footage of retail food space per capita last year set a record, with 4.15 square feet of food retail per person, according to CoStar Group, a commercial real-estate firm, nearly 30 times the amount of space allocated to groceries at major chains in 1950.”
  • “To be sure, major grocery chains weren’t as numerous decades ago, with many Americans shopping for food at mom and pop stores.”
  • “But the growth in groceries have extended across many types of retailers in recent years. Part of the expansion comes from grocers, who accelerated their store openings as a way to drive sales growth after the 2008 recession. At the same time, club chains, dollar stores, pharmacies—and even gas stations—increased their fresh food offerings to drive traffic and boost profits.”
  • Additionally, this article doesn’t mention the increasing foot prints of these grocers. Many are resembling department stores, but with an emphasis on food.

Finance

WSJ – Private Equity Takes Fire  as Some Retailers Struggle – Lillian Rizzo 7/30

  • “A wave of retail bankruptcies washing through court has revived an old debate about the role of private-equity firms in accelerating the problems of companies in distress.”
  • “Payless ShoeSource Inc., Gymboree Corp., rue21 Inc. and True Religion Apparel Inc. were all acquired by private-equity firms during the past decade. Now, lawyers for creditors have questioned whether private-equity firms share blame for the retailers’ financial collapse, in some cases by loading debt on the companies.”
  • “In the case of Payless, investors Golden Gate Capital and Blum Capital, after a leveraged buyout in 2012, over the next two years paid themselves $350 million in dividends—in total putting more than $700 million in debt on the company. In 2016, Payless said in court papers, it had about $2.3 billion in global net sales, and nearly $840 million in debt.”
  • “Vendors and landlords alleged in court papers that the dividend payouts, along with other payments to the investors, left the retailer particularly vulnerable to collapse just as technology and shifting consumer behavior upended the retail industry.”
  • “In general, private-equity executives say they often help companies improve operations and grow and that, sometimes, economic forces are beyond what any company could weather.”
  • “Moreover, retail woes are much bigger than private equity and extend to many companies that aren’t owned by such investors. Some private-equity investments haven’t had the problems others are experiencing.”
  • “Bankruptcy cases are messy by nature, and creditors—typically facing losses—are often determined to minimize them. In Payless’s case, which moved closer to exiting bankruptcy protection this month, lenders owed a majority of its debts will take control of the company.”

China

Bloomberg – China Asks Waldorf Owners Anbang to Sell Assets Abroad, Sources Say 7/31

  • “Chinese authorities have asked Anbang Insurance Group Co., the insurer whose chairman was detained in June, to sell its overseas assets, according to people familiar with the matter.”
  • “The government has also asked Anbang to bring the proceeds back to China after disposing of holdings abroad, said the people, who asked not to be identified because details are private. It is not clear yet how Anbang will respond, the people said.”
  • “Anbang was among the most prominent of Chinese insurers that went on a buying binge across the globe, fueled by soaring sales of investment-type insurance policies, with its 2014 acquisition of New York’s Waldorf Astoria hotel catapulting it into the public eye. Chairman Wu Xiaohui has been detained for questioning since mid-June, while the policies fueling its growth have been all but banned by regulators.”
  • “Anbang’s rise in recent years was fueled by sales of lucrative investment products that offered among the highest yields compared with peers. China’s insurance regulator this year started clamping down on what it termed ‘improper innovation’ and tightened rules on high-yield, short-term investment policies. Anbang and other aggressive insurers such as Foresea Life got caught up in the crackdown.”
  • “One Anbang product, called Anbang Longevity Sure Win No. 1, boosted the firm’s life insurance premiums almost 40-fold in 2014 by offering yields as high as 5.8%. That helped provide fuel for the firm’s more than $10 billion of overseas acquisitions since 2014 and equally ambitious investing in the domestic stock market.”

FT – One of China’s biggest P2P lenders quits ahead of clampdown – Louise Lucas and Sherry Fei Ju 7/30

  • “China’s pending regulatory crackdown on the $120bn peer-to-peer lending industry has claimed its first scalp before it has even begun, with one of the biggest players saying it will wind up its business in an industry full of bad loans and no profits.”
  • “Beijing this month said it would delay regulations that will bar online lenders from guaranteeing principal or interest on loans they facilitate, cap the size of loans at Rmb1m for individuals and Rmb5m for companies, and force lenders to use custodian banks — a requirement only a fraction of the industry has met so far.”
  • “Imposition of the new rules has been delayed from next month until June next year to give companies more time to comply.”
  • “But Hongling Capital has already thrown in the towel, with founder and chairman Zhou Shiping last week admitting that ‘P2P lending is not what we are good at, neither is it something we see potential in. This [P2P lending] business of ours would always be cleared out eventually — it’s only a matter of time.'”
  • “Hongling, which has Rmb17.6bn ($2.6bn) in loans, plans to wind down its eight-year online lending business by the end of 2020.”
  • “According to Online Lending House, a website that tracks the industry, the number of P2P lenders peaked at 2,600 in 2015, while 3,795 platforms have collapsed since 2011.”
  • “Outstanding loans from China P2P lending platforms totaled Rmb816.2bn ($121bn) at the end of December, double the figure of a year earlier, according to P2P consultant WDZJ.com.”

WSJ – Chinese Banks’ Dash for Capital Gets Under Way – Anjani Trivedi 7/31

  • “Investors have long questioned when China’s banking system, with its heaps of bad loans and hidden leverage, would resort to raising much-needed equity. From the look of it, the weakest lenders are starting to do so.”
  • The method, convertibles. To start, “Ping An Bank, a midsize lender notorious both for selling piles of high-yielding investment products and for sitting on masses of overdue loans, said last week that it plans to issue 26 billion yuan ($3.9 billion) of convertible bonds—uncommon in China—that can be switched into its Shenzhen-listed shares. While convertibles don’t count as equity straight away, they could help improve Ping An’s equity levels when they are turned into stock.”
  • Debt is the green

South America

FT – Venezuelans snub Maduro vote on day marred by violence – Gideon Long 7/31

  • In a word, impunity…
  • “Venezuelans on Sunday largely snubbed Nicolás Maduro’s election for a new all-powerful political assembly, in a vote marred by violence that killed at least 10 people and left seven police officers injured by a bomb attack.”
  • “Opposition leaders rejected the electoral commission’s turnout figure of 8.1m — 41.5% of the electoral register — saying only about 2m had actually voted. Analysts estimated the turnout at 3m-4m.”
  • “The president’s critics say the new assembly, which will be convened within 72 hours, will snuff out the last vestiges of democracy in Venezuela after nearly two decades of populist leftwing rule, turning the country into a new Cuba. It will have the power to dissolve the democratically elected Congress, where the president’s opponents have a majority, rewrite the constitution, scrap future elections and draft new laws.”
  • “In the run-up to the vote, all reliable polls had suggested that between two-thirds and three-quarters of Venezuelans opposed Mr. Maduro’s assembly. One poll said only about 12% of the electorate would vote for it.”
  • The country’s decent continues.

WSJ – Daily Shot: Venezuela Money Supply YoY Change 7/21

  • “Venezuela’s money printing has accelerated. The broad money supply has risen 400% over the past year.”

June 28, 2017

If you were to read only one thing…

FT – Xi Jinping’s war on financial crocodiles gathers pace – Minxin Pei 6/25

  • “In late April, President Xi Jinping convened a politburo meeting specifically focused on stability in the financial system. Foreshadowing the crackdown, he ordered that those ‘financial crocodiles’ that destabilize China’s financial system must be punished.”
  • “While Mr. Xi did not name those financial crocodiles, it is not hard to find Chinese tycoons fitting this description: those who have borrowed recklessly and bought expensive overseas assets with abandon. A crackdown on such behavior is not only long overdue, but also can serve multiple purposes. As the Chinese saying goes, you slaughter a chicken to warn the monkeys.”
  • “Making an example of China’s wealthiest tycoons can have an instant and powerful deterrent effect and rein in overly aggressive business practices endangering the stability in China’s overleveraged and under-regulated financial sector. But the political benefits of a clampdown on Chinese tycoons, so far overlooked by most observers, are likely to be even more significant.”
  • “A large number of these tycoons had made their immense fortune before Mr. Xi’s ascent to the top in late 2012. As good relations with government officials are critical to business success, it is reasonable to assume that many, if not most, Chinese tycoons have cultivated close personal ties with members of China’s ruling elite.”
  • “Carrying out such a purge is relatively easy. Since many Chinese tycoons depend on state-owned banks for funding, the simplest way of pushing them under is to order the banks to cut off credit. This could force overleveraged tycoons into a liquidity crisis and even bankruptcy. Even those with healthier balance sheets will not be safe. The Chinese authorities will have no difficulty finding them to be in breach of some rule or other, ensuring that a politically motivated purge can be passed off as tough regulatory enforcement action.”
  • “A broader campaign to subdue Chinese tycoons will also help eliminate a longer-term threat to the Chinese Communist party in general, and the authority of Mr. Xi in particular. Under his leadership the party has methodically neutralized threats to its rule — from rival factions, corrupt officials, the media and liberal activists. But one powerful group, business tycoons, has remained largely untouched — until now.”
  • “This crackdown will be discriminating. A large number of Chinese tycoons will be sitting ducks because of their enormous wealth and questionable political allegiances. Others will be left alone or forced to prove their loyalty. When it is over, we should expect a complete re-ordering of China’s economic oligarchy.”
  • “The move against Anbang, Dalian Wanda and others is only the opening shot in this campaign.

Perspective

WSJ – China’s All-Seeing Surveillance State Is Reading Its Citizens’ Faces – Josh Chin and Liza Lin 6/26

  • “Facial-recognition technology, once a specter of dystopian science fiction, is becoming a feature of daily life in China, where authorities are using it on streets, in subway stations, at airports and at border crossings in a vast experiment in social engineering. Their goal: to influence behavior and identify lawbreakers.”
  • “China is rushing to deploy new technologies to monitor its people in ways that would spook many in the U.S. and the West. Unfettered by privacy concerns or public debate, Beijing’s authoritarian leaders are installing iris scanners at security checkpoints in troubled regions and using sophisticated software to monitor ramblings on social media. By 2020, the government hopes to implement a national ‘social credit’ system that would assign every citizen a rating based how they behave at work, in public venues and in their financial dealings.
  • “A world where everyone can be tracked by their face wherever they go is still a long way off, and will require much better algorithms and cameras than currently exist, said Anil Jain, the head of Michigan State University’s Biometrics Research Group.”
  • “China is moving in that direction, abetted by a vast surveillance network. Industry researcher IHS Markit Ltd. estimates China has 176 million surveillance cameras in public and private hands, and it forecasts the nation will install about 450 million new ones by 2020. The U.S., by comparison, has about 50 million.”

WSJ – Daily Shot: Data is Beautiful – World’s Highest Paid Athletes 6/27

Worthy Insights / Opinion Pieces / Advice

The Registry – Is Macy’s Amazon’s Next Target – John McNellis 6/23

  • Don’t sell the cow for the magic beans just yet. McNellis is great at providing perspective.

WSJ – Ties Between Chinese Banks and Deal Makers Run Deep – Anjani Trivedi 6/26

Motherboard – Amazon Is Trying to Control the Underlying Infrastructure of Our Economy – Stacy Mitchell 6/25

FT – A family coup in Saudi Arabia – Nick Butler 6/25

FT – Why Italy’s 17bn bank rescue deal is making waves across Europe – FT Reporters 6/26

FT – Italian bailout: too small to fail – Lex 6/26

  • “Blame central bank printing presses, and a consequent hunt for yield, for mispriced risks. By using public funds, European regulators have done nothing to dispel the notion that the ultimate costs of financial stability will continue to be borne by taxpayers.”

Markets / Economy

FT – Advertising agencies squeezed by tech giants – David Bond 6/25

  • “The industry has benefited from the growth in online publicity but it is starting to feel the impact of disruption.”

WSJ – Daily Shot: FRED – US Commercial & Industrial Loan Growth 6/26

WSJ – Daily Shot: FRED – US MZM Money Stock Growth 6/26

Real Estate

Bloomberg – Why Can’t They Build More Homes Where the Jobs Are? – Patrick Clark 6/23

  • “In a logical world, builders would rush to put up homes in the U.S. regions adding jobs at the fastest pace. In reality, it’s not so simple.” 
  • “San Francisco’s metropolitan area added 373,000 net new jobs in the last five years—but issued permits for only 58,000 units of new housing. The lack of new construction has exacerbated housing costs in the Bay Area, making the San Francisco metro among the cruelest markets in the U.S. Over the same period, Houston added 346,000 jobs and permitted 260,000 new dwellings, five times as many units per new job as San Francisco.”
  • “You can see the imbalance in this chart, based on one that Lawrence Yun, chief economist for the National Association of Realtors, uses to explain the shortage of for-sale homes across the country. For each metro, it compares net new jobs created from 2012 to 2016 with the number of new housing units authorized over the same period. Historically, one new housing unit for every two jobs created is considered normal, Yun said.”
  • “Nationally, builders have added fewer new units in the 10 years ending in 2016 than in any 10-year period since 1990. Low vacancy rates have led to rising rents. House hunters are sweating it out in seller’s markets, in which homes go quickly—and often above the listing price.”
  • “There are two ways to ease the inventory crunch, Yun said in an interview: ‘Either the builders build homes, or real estate investors unload homes onto the market.’”
  • “Why aren’t builders swinging into action? One reason may be a mismatch between the places people want to live and the places where buildable land is available. Plus, builders have had a hard time filling open positions, which boosts labor costs and slows the pace of construction. Zoning rules often prevent greater population density, pushing builders to erect single-family homes on the peripheries of big cities, instead of apartment buildings closer to job centers.” 
  • “Regulatory costs play a role, too. On average, they account for 24% of the expense of building a new home, according to a 2016 study from the National Association of Home Builders. In San Diego, they drive 40% of the cost of a new home, according to a report by a local housing group.”

Bloomberg – These Are the U.S. Cities Where It Costs Too Much to Build – Patrick Clark 6/26

  • “The U.S. needs more new housing.”
  • “Existing homes are in short supply for both buyers and renters, from bustling coastal metropolises to smaller inland cities. Home seekers are bidding up prices and historically low ownership rates mean more people are renting, triggering fierce competition for leases. There are signs that rent growth is slowing—it’s just not slowing quickly enough.”  
  • “A new report published by the National Multifamily Housing Council and the National Apartment Association—two trade groups for landlords—seeks to quantify just how much rental housing is really needed in cities across the U.S.—as well as how difficult it is for real estate developers to actually deliver.”
  • “The first chart seeks to quantify the demand part of the equation. It looks across metropolitan areas, estimating future homeownership rates, household formation, demand for second homes, and attrition of older units—among other factors.”
  • Second chart…
  • “The bad news for cities on this chart is that rent is expensive all over. In seven out of 10 cities where it’s hardest to build, more than two-fifths of renters spend at least 35% of their income on rent. The worst on that count is Miami, where 54% of renter households spend more than one-third of their income to pay for housing.”

Energy

WSJ – Shale Produces Oil, Why Not Cash? – Spencer Jakab 6/26

FT – Oil exporters face fall in foreign exchange reserves – Steve Johnson 6/26

Finance

WSJ – Daily Shot: Danske Bank – US Treasury SOMA redemption schedule 6/26

Environment / Science

NYT – Carbon in Atmosphere Is Rising, Even as Emissions Stabilize – Justin Gillis 6/26

China

FT – Anbang’s predicament amid bank-risk probe – Gabriel Wildau 6/25

  • “Last week China’s banking regulator ordered lenders to report their credit exposures to Anbang Insurance Group and three other private conglomerates that have been snaffling up overseas assets in recent years.”
  • “The move adds to the problems facing Anbang, which has become known for splashy purchases including New York’s Waldorf Astoria hotel.”
  • “Anbang’s rise over the past three years has been spectacular. Premium revenue reached Rmb504bn ($74bn) last year from only Rmb26bn in 2013, driven by sales of universal life insurance, a savings product.”
  • “Anbang is big, and its business model creates risks. Combined assets from Anbang’s life, property and casualty, and health units rose from Rmb163bn to Rmb2.5tn over the same period, making it China’s second-largest privately owned insurer behind Ping An Insurance Group.” 
  • “The group’s business model creates a potential for a maturity mismatch. It sells investment products with maturities as short as two years, but ploughs much of the revenue into assets that could be difficult to sell on short notice. That could leave it struggling to raise cash if many investors ask for their money back at once.”
  • “Anbang’s various subsidiaries own Rmb1.06tn worth of shares in mainland-listed companies, according to Wind Information. Anbang has also completed foreign acquisitions worth more than $11bn since 2014, according to Dealogic.”
  • “Premium revenue at Anbang Life Insurance plunged to just Rmb1.5bn in April from a monthly average of Rmb27bn last year and Rmb82bn per month in January and February, according to CIRC data.”
  • “Sam Radwan, partner at Enhance, a consultancy that advises Chinese insurers, says that many companies that sell short-dated universal life policies use cash from new product sales to help them meet payouts on maturing ones. That way they do not have to sell longer-dated investments. But a halt to sales would threaten that practice if it continues.”
  • “Analysts say regulators may face pressure to allow Anbang to resume at least some new product sales or arrange other temporary funding support. That would give the company more time to raise cash by selling assets or raising new equity.”
  • “Anbang’s last big equity injection, worth $9bn, was in 2014. Since then, Anbang has relied on leverage to fuel its rapid asset growth.” 
  • “The leverage ratio at Anbang Life Insurance — total assets divided by shareholders’ equity — rose from 3:1 to 17:1 from 2013 to 2016, according to Financial Times calculations based on the company’s annual report. State-owned China Life Insurance, which follows a more conservative strategy, has a ratio of 9:1.” 
  • “Anbang Life’s solvency ratio — a metric used to measure an insurer’s ability to meet promised payouts — fell from 150% at the end of last year to 129% three months later. It is still well above the 100% ratio that signals potential inability to meet obligations.”

Europe

Reuters – Italy winds up Veneto banks at cost of up to 17 billion euros – Silvia Aloisi and Steven Scherer 6/26

  • “Italy began winding up two failed regional banks on Sunday in a deal that could cost the state up to 17 billion euros ($19 billion) and will leave the lenders’ good assets in the hands of the nation’s biggest retail bank, Intesa Sanpaolo.”
  • “The government will pay 5.2 billion euros to Intesa, and give it guarantees of up 12 billion euros, so that it will take over the remains of Popolare di Vicenza and Veneto Banca, which collapsed after years of mismanagement and poor lending.”
  • “Economy Minister Pier Carlo Padoan said the total funds ‘mobilized’ by the state would be for up to 17 billion euros – three times more than had initially been estimated to recapitalize the banks with public money.”
  • “The decree effectively means that the Veneto banks’ branches and employees will be part of Intesa Sanpaolo by Monday morning, a move designed to avoid a potential run on deposits that could have spread chaos across the whole banking industry.”
  • “Intesa Sanpaolo, Italy’s best-capitalized large bank, said last week it was open to purchasing the rump of the good assets for one euro on condition Italy’s government passed a decree agreeing to shoulder the cost of winding down the two banks.”
  • Well, good thing they waited. Now they were paid 5.2 billion for the good assets.

Other Links

FT – Sale prices for second-hand private jets fall 35% – Hugo Greenhalgh 6/24

  • “Rich find their planes are hard to sell because of glut created a decade ago.”

WSJ – Daily Shot: Car Ownership Cost Comparison 6/26

June 19, 2017

If you were to read only one thing…

FT – The real risks of the falling oil price – Nick Butler 6/11

  • “In any discussion of the oil market it is all too easy to ignore the real world consequences of the price fall that has occurred over the last three years. We might appreciate a small cut in the price of petrol or gasoline at the pump, even though its effect is dampened by high levels of taxation. But we do not give much thought to the impact of price changes on the supplying countries. That is short-sighted because the structural shift that has taken place is profoundly destabilizing and potentially very dangerous.”
  • “A new note from the Energy Information Administration in the US published last month sets out the impact of the fall in prices in recent years. It is worth summarizing the data, which are expressed in real 2016 dollars.”
  • “These are big numbers for all the countries involved. Very few have diverse economies that can adjust quickly to the fall in the price of a crucial export commodity. Most have large dependent populations, especially of children and young people. Nigeria, for instance, has some 115m people, amounting to 61% of its population, under the age of 25; Angola 13m — 63% of its population.”
  • “But simply looking down on the failings of the oil producers is not an adequate response.”
  • “The price fall has reduced the revenue of the Opec states by some $750bn from the 2012 level — a fall of over 60%. None have fully adapted to that loss of income. Most have assumed that the price change would be temporary and some have even borrowed to cover the shortfall of revenue against current spending — thereby storing up even more problems for the future.”
  • “The real pain of enforced austerity is only just beginning and will deepen as governments realize that the price fall is more structural than cyclical. The latest attempt to manage the market by extending the production quota for another nine months has had no positive effect. Prices for Brent crude on Friday were down to about $48 per barrel.”
  • “The pain will be profoundly destabilizing. At least five Opec states are at risk of very serious political and economic destabilization, including major economies such as Venezuela and Nigeria. Civil unrest is already evident in Libya and latent in Algeria. Across the whole of the cartel there is a substantial and growing group of restless, unemployed youths aged between 15 and 30.”
  • “In reality, the structural fall in the oil price is the most destabilizing economic event to have hit the world since the financial crash of 2008. In this case, the impact is being felt in slow motion but it is building and feeding on existing conflicts and tensions. And just as the collapse of the subprime housing market in the US shook the global economic system, so the problems of the cartel cannot be contained within the countries themselves. When problems are rapidly globalized through migration, terrorism and even health risks if key public services collapse, the deteriorating situation within Opec is all too likely to become our problem too.”

Perspective

Bloomberg – The U.S. Is Where the Rich Are the Richest – Ben Steverman 6/16

cnsnews.com – Census: More Americans 18-to-34 Now Live With Parents Than With Spouse – Terence Jeffrey 4/19

Worthy Insights / Opinion Pieces / Advice

WSJ – How Anbang Could Clog China’s Financial Plumbing – Anjani Trivedi 6/16

  • “China’s decision to detain the chairman of Anbang Insurance Group, one of the country’s most acquisitive companies, is stunning in itself. The knock-on effects on the Chinese financial system could deepen the drama.”
  • “If customers of Anbang—owner of New York’s Waldorf Astoria hotel—start surrendering their policies and stop buying new ones, that could accelerate a continuing cash drain at the company. China’s insurance regulator has already been clamping down on the primary source of Anbang’s cash since late last year—short-term, high-yielding investment products disguised as insurance policies. Its premium income plunged 99% in April while its solvency ratio halved in the first quarter from the previous year.”
  • “The company’s tentacles reach far and deep into China’s financial system, with one key route being its lending of short-term funds into Chinese money markets.”
  • “Take its dealings with Chengdu Rural Commercial Bank, a provincial bank of which Anbang owns more than one-third, and which itself has some 40 subsidiaries across towns and villages in China. Anbang provides around 40% of the deposits for Chengdu Rural, and accounts for 80% of its related-party transactions, most of which are short-term, money-market loans. The bank also pays Anbang a high 5% interest on its deposits and holds some of Anbang’s debt.”
  • “Such tight relationships illustrate how financial stress at Anbang could quickly ripple through China’s banking system. Banks like Chengdu Rural have already become increasingly reliant on short-term wholesale funding and have been resorting to capital raises: The loss of a big cash provider like Anbang could cause real pain. Interbank funding conditions are already tight in China—the country’s central bank made its biggest one-day cash injection into the market in nearly six months on Friday. If the detention of Anbang’s chairman leads to the company stepping back more broadly from Chinese markets, the saga could have a while to run.”

Markets / Economy

Bloomberg – Nissans Crowding Rental-Car Lots Carry Risk as U.S. Sales Slow – Jamie Butters and John Lippert 5/30

Real Estate

Investment News – W.P. Carey exiting the nontraded REIT business – Bruce Kelly 6/16

Energy

Bloomberg – Solar Power Will Kill Coal Faster Than You Think – Jess Shankleman and Hayley Warren 6/15

National Post – This lonely drifting tanker carrying 2 million barrels nobody wants to buy sums up global oil’s struggle – Laura Hurst and Javier Blas 6/14

Asia – excluding China and Japan

FT – US targets $540m in assets bought with 1MDB funds – David Lynch 6/15

  • “The US Department of Justice on Thursday moved to seize an additional $540m in assets purchased with funds stolen from Malaysian sovereign wealth fund 1MDB, including a luxury yacht, a Picasso painting, jewelery and rights to the movie Dumb and Dumber.” 
  • “The US now estimates that a total of $4.5bn was pilfered by Malaysian public officials and their associates including Jho Low, a well-connected Malaysian businessman who held no formal role in the project.” 
  • “Including the new lawsuit and earlier civil forfeiture actions, the US government has moved to recover $1.7bn of that amount, according to Kendall Day, acting deputy assistant attorney-general. This represents the largest such US seizure action under a DoJ initiative aimed at recovering money stolen by corrupt foreign officials.”

China

Bloomberg Businessweek – Try Getting Your Kid Into a Beijing Public School – Dexter Roberts 6/7

FT – A deal too far for China’s Anbang – Tom Mitchell, Henny Sender, Lucy Hornby, and Gabriel Wildau 6/16

  • “The apparent fall from grace of the founder Wu Xiaohui has shone a spotlight on a brand of Chinese capitalism that has taken root in the financial industry.”

South America

FT – Venezuela’s food parcels prove imperfect solution to crisis – Gideon Long 6/16

  • “According to Fedeagro, an agricultural association, Venezuela produces only enough food to cover between 30-40% of domestic consumption, compared with about 70% a decade ago. Chronic food shortages ensure that Venezuelans regularly skip meals and go hungry. A survey from the Universidad Central de Venezuela found that three-quarters of the Opec nation’s population lost weight involuntarily in 2016.”

Other Links

Tax Foundation – How High Are Wine Taxes In Your State? – Jose Trejos 6/15

June 16, 2017

Perspective

MarketingDaily – Despite Retail Slump, Consumers Feel Generous At Checkout – Sarah Mahoney 6/14

  • “With retailers closing thousands of stores and malls growing emptier, it’s easy to think Americans would be less inclined to pony up for good causes at the register. But the latest Charity Checkout Champions report says that people contributed $441 million last year to some of the biggest point-of-sale campaigns, up 4.5% from 2014.”
  • “The biggest fund-raiser is eBay for Charity, which raised $56.6 million by allowing sellers to give a portion of sales to one of 34,000 charities. The Miracle Balloon program at Sam’s Clubs and Walmart stores came in at No. 2, raising $37 million for Children’s Miracle Network Hospitals in just seven weeks. And Petco bumped the McDonald’s Coin Collection program, benefitting Ronald McDonald House, out of third place, generating $28.3 million in gifts for the Petco Foundation, which funds pet welfare and adoption groups.”

The Big Picture – Sharing Economy – Barry Ritholtz 6/15

Our World in Data – Proportion of seats held by women in national parliaments 6/15

WSJ – A Test of Loyalty at Macy’s – Miriam Gottfried 6/15

Worthy Insights / Opinion Pieces / Advice

WSJ – Oil Outlook Now So Bleak It May Be an Opportunity – Spencer Jakab 6/14

  • “Things look bleak, but oil bulls nursing losses should take solace in the fact that the consensus view in this market is usually wrong.”

Markets / Economy

WSJ – Daily Shot: FRED – Used cars and trucks price index 6/15

WSJ – Daily Shot: Capital Economics – Projected Fed Asset Holdings 6/15

Real Estate

Bloomberg – Blackstone Plans to Sell San Francisco’s Ferry Building – David Carey and Hui-yong Yu 6/9

NYT – A $664,000 Parking Spot Symbolizes Hong Kong’s Property Frenzy – Austin Ramzy 6/15

  • The last time this happened I covered in my 10/28/16 – 11/3/16 post. Well now the record is $664,000.
  • “The buyer was listed as Kwan Wai-ming, whom local news outlets identified as executive director of the Huarong Investment Stock Corporation. His company declined to comment. That price, paid for a spot in an apartment complex on Hong Kong Island, was a new local record, breaking the previous $615,000 paid for a slightly smaller spot last year.”
  • “For his money, Mr. Kwan may get convenience. He already owns property in the same apartment complex where the parking spot is situated, called the Upton, in the Sai Ying Pun district. He previously bought two apartments for $9.7 million and two other parking spots in the complex for $995,000, according to the Hong Kong land registry.”
  • “But some wealthy residents revel in the recognition that comes with a Lamborghini or even a coveted license plate. Last year, a plate carrying the number 28, which sounds like a phrase for ‘easy money’ in Cantonese, sold for a record $2.3 million at auction.
  • Seriously?

WSJ – Google Will Buy Modular Homes to Address Housing Crunch – 6/14

  • “The Mountain View, Calif., company is finalizing an order to buy 300 apartment units from Factory OS, a modular-home startup, in a building likely to serve as short-term housing for Google employees, according to executives from both companies.”

Energy

WSJ – OPEC Stumbles in Face of Oil Glut – Summer Said, Georgi Kantchev, and Neanda Salvaterra 6/14

  • “The global oil glut is proving immune to the limits set by the Organization of the Petroleum Exporting Countries and its big-producer allies like Russia, fueling the idea that output caps withholding almost 2% of world crude supply were a miscalculation.”
  • “In the U.S., the Energy Information Administration said Wednesday that crude stockpiles fell last week by 1.7 million barrels, less than the 2.6 million drop forecast by a Wall Street Journal survey. At the same time, gasoline inventories rose by 2.1 million barrels, compared with the survey’s expectation of a 700,000 decline, underlining worries about the oversupply extending to crude oil’s products.”
  • “Oil stockpiles in the Organization for Economic Cooperation and Development—a club of 35 countries with industrialized economies—rose by 18.6 million barrels in April and were higher than they were when OPEC agreed to its cut late last year, said the International Energy Agency, a Paris-based group that advises governments on energy trends.”
  • “Adding to oil traders’ angst: U.S. oil production has come roaring back to life. The IEA said U.S. crude supply will grow almost 5% on average this year, and nearly 8% in 2018, potentially vaulting American producers ahead of Saudi Arabia in daily output.”
  • “’Such is the dynamism of this extraordinary, very diverse industry it is possible that growth will be faster,’ the IEA said.”
  • “Saudi energy minister Khalid al-Falih said this week that the production cuts would start having an impact this summer, accelerating a drop in stored oil that OPEC said began in January. He has said OPEC and Russia would do ‘whatever it takes’ to bring supply back in line with demand.”
  • “Daniel Yergin, vice chairman of IHS Markit and a long-time oil market watcher, said OPEC wouldn’t abandon its production-cut agreement, which took almost a year to put together through 2016.”
  • “’When OPEC and the other producers agreed to this deal, they hoped that, as the old adage says, time heals all—and time will heal the inventory problem,’ Mr. Yergin said. ‘They should now take a deep breath and realize this will take a lot more time.’”
  • “The cartel set a tough goal last December, when its officials said they wanted to cut oil-storage levels to the five-year average.”
  • “OPEC said OECD storage levels actually have been falling but by only 88 million barrels in the first four months of 2017. At that pace, it would take until March 2018 for stockpiles to fall another 250 million barrels to the five-year average.”

WSJ – Daily Shot: eia – US Wind and Solar Electricity Generation 6/15

WSJ – Beijing Gives Banks the Go-Ahead for Yet Another Lending Binge – Anjani Trivedi 6/14

  • “While Beijing is carrying out a high-profile campaign to reduce leverage in its financial markets with one hand, with the other it is encouraging more potentially reckless borrowing. This week, the regulator put pressure on the country’s big banks to lend more to small companies and farmers, while the government announced tax breaks for financial institutions that lend to rural households.”
  • “If the goal of lending to poorer customers sounds noble, the concern is that the execution will only worsen Chinese banks’ existing problems, namely high levels of bad loans and swaths of mispriced credit. Bank lending to small companies is already growing pretty fast, with non-trivial sums involved: It jumped 17% in the year through March to 27.8 trillion yuan ($4.084 trillion). That compares favorably with the 7% rise in loans to large- and medium-size companies over the same period.”
  • “But lending standards are set to get even looser. Banks have been told they should tolerate higher nonperforming loan ratios for small companies and agriculture-related lending, meaning they need to worry less about credit quality. The regulator also asked banks to keep interest rates on such loans at an ‘appropriate’ level—effectively allowing banks to ignore the proper pricing of risk.”
  • “This all flies in the face of efforts to cull bad credit from the economy. Chinese banks are already given plenty of leeway to classify loans how they like: The new measures may only encourage them to avoid writing off bad debt. It isn’t clear, either, how allowing small businesses and farmers to borrow even more will help China Inc. cure its addiction to debt-fueled growth.”

WSJ – Chinese Banks Limit Exposure to Anbang – James T. Areddy 6/15

  • “A number of banks have slowed marketing of Anbang-branded investments to their customers in recent days, according to people with knowledge of the situation.”

June 6, 2017

Perspective

Economist – The super-rich are different: they pay less tax 6/1

Visual Capitalist – The Problem With Our Maps – Nick Routley 6/2

Worthy Insights / Opinion Pieces / Advice

FT – Grantham says higher valuations will persist – Robin Wigglesworth 6/1

  • “The US stock market has entered an era of higher valuations and probably has further room to rise, according to Jeremy Grantham, the founder of asset manager GMO and a known bearish spotter of financial bubbles.”
  • “Mr. Grantham, a notoriously bearish ‘value investor’ who correctly called and dodged the Japanese, dotcom and housing bubbles, sees little to worry him in the US market today. Expressing a preference for emerging market equities to US stocks, GMO’s founder points to seemingly durable pillars of healthy corporate profits, low interest rates and any lack of euphoria.”
  • “’I’ve dedicated my life to financial bubbles, and I don’t think it is a bubble,’ he told the Financial Times. ‘This is the broadest market of all time . . . That is not the nature of a bubble.’”
  • “Moreover, the normally bearish investor — who has built much of his career on the observation that market levels ultimately tend to revert to their long-term average — has even reluctantly conceded that US share prices may have shifted durably to a higher level since the late 1990s.”
  • “He laid out the case for why ‘this time seems very, very different’ in his quarterly letter to investors, pointing out that despite some wild swings in recent decades — caused by the dotcom bubble and subsequent crash, and then the global financial crisis — US price-to-earnings have averaged over 23 times since 1997, compared with nearly 14 times in the preceding decades, when he started his career.”
  • “The central reasons are globalization increasing the earning power of US multinationals, the growing political influence of American corporations and more onerous regulations stifling the growth of disruptive upstarts, in turn leading to increasingly monopolistic US companies, and above all a secular and durable decline in interest rates.”
  • “Mr. Grantham admits his new tone gets ‘groans from fellow value investors’ where it has ‘rattled a lot of cages’, but argued that previously dependable rules have to be re-examined and some even cast aside, given that the ‘world has changed’.”
  • “’You now have to treat previously cast-iron rules with suspicion. They’re more like aluminum rules now.’’’

Real Estate

WSJ – Daily Shot: John Burns Real Estate Consulting – US Investor Purchase Percentage 6/1

WSJ – Riksbank Chief Wants Swedish Government to Cool Red-Hot Property Market – Nina Adam 6/1

  • “Sweden’s central bank governor Stefan Ingves said a red-hot housing market and record-high level of household debt will put the Scandinavian country’s economy in peril unless the government cools the property sector down.”
  • “Swedish property prices have soared in recent years, fueled by low borrowing costs and strong economic growth. The Riksbank estimates that house prices have doubled and apartment prices have tripled over the past 10 years. At the same time, household debts have risen to 180% of disposable incomes, which is a record high.”
  • “Goldman Sachs earlier this month attached about a 35% chance to a housing bust in Sweden over the next five to eight quarters.”
  • “The Bank for International Settlements and others have warned that a long period of very low global interest rates could lead to a fresh cycle of boom and bust in housing markets. While that seems like a distant prospect in many parts of the world, Sweden may be an early test of how much has changed since the last financial crisis.”

Finance

NYT – In Texas, Some Rare Good News About Cities With Pension Woes – Mary Williams Walsh 6/1

  • “Detroit. Stockton. Puerto Rico. The list of places bankrupted by ballooning pension obligations and other debts is growing. But now comes some good news about two cities, Dallas and Houston, that have pulled back from the brink.”
  • “Just six months ago, the mayor of Dallas, Michael S. Rawlings, was warning that his city might need to declare bankruptcy after a panic led stampeding retirees to pull half a billion dollars out of its pension fund for police officers and firefighters.”
  • “But instead of going to bankruptcy court, Mr. Rawlings went to Austin, the state capital, to lobby for state pension laws that would stop the bleeding. So did the mayor of Houston, Sylvester Turner, who faced other pension problems and had persuaded the city’s labor groups to agree to concessions worth $1.3 billion over the next 30 years.”
  • “Each city had its own bill, because each had its own unique problems. But both bills involve measured reductions in pension accruals for workers and retirees — mainly in secondary benefit categories like inflation adjustments and lump-sum payouts. In exchange, the pension funds will receive more money from the cities to protect the core benefits.”
  • “As happy as the resolution may seem, the steps that Texas took are illegal in other places where public pensions are imperiling the finances of cities and states. Illinois, California, Oregon, Pennsylvania and Kansas are among the states where, by law, public pensions cannot be reduced — not even the pensions that current workers hope to earn in the future.”
  • “That doctrine, known as the California Rule, explains why California cities like Vallejo and Stockton reduced their payments to other creditors when they went into bankruptcy but did not touch their workers’ costly pension plans.”
  • “Both cities were spurred to act by the risk of credit downgrades and by a recent accounting change that calls for cities to calculate the number of years before their pension funds will run out of money — a once-unthinkable catastrophe that has come to pass in Prichard, Ala.; Central Falls, R.I.; and now Puerto Rico.”
  • “Those developments — and Detroit’s bankruptcy — have shown that Washington will not bail out government pension funds that go bust; officials had to patch together money from other sources, and even then, the retirees of Prichard, Central Falls and Detroit had their benefits cut. Cuts are expected soon in Puerto Rico, too.”

China

WSJ – Baidu’s Turn as a Bank Is Unwelcome – Jacky Wong 6/1

  • “Everything is a bank in China these days it seems—even its biggest internet search engine.”
  • “Eager to get a bigger slice of the pie, Baidu has been aggressively selling its own wealth management products. Assets in its financial services business had more than doubled to $3.7 billion by the end of March from three months previously, according to Fitch. It has also been offering microloans, many of them unsecured, to consumers who may be unable to borrow from banks.”
  • “Fitch, rightly, is worried that Baidu is running the same risk as China’s banks: its aggressive selling of investment products and microloans could come back to bite the company if there is a wave of defaults. Baidu has around $5 billion of net cash to cover any losses. But with its core search business stagnant, investors shouldn’t welcome Baidu taking on such new risks.”

FT – Billionaire Anbang boss Wu Xiaohui barred from leaving China – Henny Sender and Lucy Hornby 6/2

Puerto Rico

Bloomberg – Puerto Rico’s Exodus Is Speeding the Island’s Economic Collapse – Jonathan Levin and Rebecca Spalding 6/2

  • “The choice is heartbreaking: stay to help other families, or leave to help your own.” 
  • “That’s the calculation thousands in Puerto Rico are making. The bankruptcy of the U.S. commonwealth, the culmination of years of decline, has accelerated an exodus that’s adding to the island’s economic misery.”
  • “The population drop is astonishing. The island has lost 2% of its people in each of the past three years. A comparable departure from the 50 states would mean 18 million people moving out since 2013. About 400,000 fewer Puerto Ricans live on an island of 3.4 million today compared with a decade ago, when its economy began contracting.” 
  • “The departures have trapped Puerto Rico in a downward spiral. A grinding recession, with joblessness at 11.5%, and $74 billion mountain of debt that pushed the island to insolvency has made collecting taxes key to an economic rebound. At the same time, more Puerto Ricans from all walks of life are moving away to better their lives, meaning government revenue is dwindling.”
  • “Puerto Rico’s bond debt has grown 87% since 2006. A simple way for individual islanders to avoid having to pay it is to move to the mainland.”
  • “The government doesn’t seem to have come to grips with the outflow. Puerto Rico’s turnaround plan — a path to sustainability approved by a U.S. oversight board — assumes the population will shrink just 0.2% each year for the next decade. It uses that number as the basis for its projections of tax receipts and economic growth.”
  • Further, “the exodus isn’t confined to professionals. Among the throngs leaving are construction workers and taxi drivers. Research by the Federal Reserve Bank of New York found that college graduates make up roughly the same proportion of emigres as they do in the island’s general population, suggesting that the departures have touched every corner of the commonwealth.”
  • “While migration is the main driver in population fluctuation, a declining fertility rate isn’t helping either. The natural population increase — excess births over deaths — fell to 3,000 last year from 20,000 a decade ago, as families facing poorer economic prospects and the threat of the Zika virus put off having kids. At the same time, younger generations of child-bearing age are more likely to take off for the mainland.”
  • Seems like the only way to stop this trend is to make Puerto Rico a full-fledged state. Question is whether or not all the vested parties are willing to go along with it.

South America

WSJ – Daily Shot: Brazil GDP 6/1

May 19, 2017

If you were to read only one thing…

FT – Chinese insurer warns of defaults as ban on new products bites – Gabriel Wildau and Nan Ma 5/17

  • “One of China’s largest insurers has warned of mass defaults and social unrest unless the regulator lifts a ban on its issuance of new products, the latest sign of stress in the industry caused by a crackdown on financial risk.”
  • “In a letter to China’s insurance regulator seen by the Financial Times, Foresea Life Insurance warns that the company expects Rmb60bn ($8.7bn) in redemptions this year and might be unable to meet payouts unless it is able to sell new products.” 
  • “In December, the China Insurance Regulatory Commission banned Foresea for three months from applying to sell new products. In February, the agency banned Foresea chairman Yao Zhenhua, China’s fourth-richest man, from the industry for 10 years.”
  • “Foresea is a unit of Baoneng Group, a property and financial conglomerate that Mr Yao also chairs. Baoneng made headlines last year by attempting a hostile takeover of China Vanke, one of China’s largest residential developers.” 
  • “Baoneng has used the sale of so-called ‘universal insurance’ products to finance its stake in Vanke and other listed companies. Such policies are, essentially, investment vehicles offering high yields and guaranteed payouts on maturities. Distributed through banks, they bear little resemblance to traditional insurance, which pays out only in the event of a risk incident such as death, illness, or accident.”
  • “Deregulation of the insurance industry in recent years has led to the sharp rise of universal insurance sales, which has helped groups such as Foresea and Anbang Insurance Group to grow.”
  • “Foresea’s premiums soared from Rmb32bn in 2014 to Rmb100bn last year but tumbled 61% in the first quarter this year. The date of Foresea’s letter indicates that, by late April, the regulator had not yet approved new Foresea products, despite the expiration of the three-month ban.”
  • “Beyond Foresea, the CIRC has moved to contain universal insurance in recent months, amid President Xi Jinping’s call to curb financial risk. Analysts warn that the high yields offered by universal insurance force issuers to take risks in order to earn the returns necessary to meet promised payouts.” 
  • “Many universal insurance products ostensibly carry long durations of five or even 10 years but the policies often include generous redemption terms, enabling investors to cash out of the products with minimal penalties.” 
  • “Foresea’s warning that mass redemptions could leave the group unable to meet payouts highlights the liquidity risk created by taking on short-term liabilities to purchase long-term, illiquid assets.”
  • “This month, the CIRC imposed a similar three-month ban on Anbang and accused the group of ‘wreaking havoc’ in the market with aggressive sales tactics. The agency specifically criticized Anbang for selling products with short maturities.”

Worthy Insights / Opinion Pieces / Advice

FT – Murder case highlights property money trail from China to US – Leslie Hook and Lucy Hornby 5/17

  • “A record bail posted in a California court for one of the accused in a murder case has thrown the spotlight on a property fortune that traces its roots to the Chinese military, in a graphic illustration of how money made in China has flooded overseas real estate markets.” 
  • “Tiffany Li is a Chinese-American heiress accused of ordering a hit on her ex-boyfriend in San Mateo county, a leafy suburb of San Francisco where Teslas are more common than violent crime. In April she posted $4m in cash and $62m in California property as bail — among the highest ever posted in the US.”

Real Estate

Bloomberg – Real Estate Deals Vanish in New York – Sarah Mulholland 5/18

  • “In New York City, first-quarter property sales plummeted 58%, to $4.3 billion, compared with a year earlier, according to data from brokerage Cushman & Wakefield Inc. It marked the lowest quarterly sales volume in six years. Nationwide, the picture wasn’t much better. Sales dropped 18%, research firm Real Capital Analytic Inc. found.”

WSJ – Mall Owners Flex Hidden Muscles Over Lenders – Esther Fung 5/16

  • “At a time when retailers are closing thousands of stores across the U.S., some lenders are deciding to renegotiate loans backing malls—and suffer guaranteed losses—rather than run the risk of being stuck owning or operating the malls themselves.”
  • “Shopping mall owner Washington Prime Group last June defaulted on an $87.3 million loan backing Mesa Mall in Grand Junction, Colo., and turned the keys over to creditors.”
  • “Rather than operate the mall, the creditors quickly sold the property—right back to Washington Prime—at a lower price. Late last month, Washington Prime told investors it had repurchased the mall and secured a discounted payoff of the original loan for $63 million.”
  • “The Mesa Mall deal is among the first known instances of mall landlords securing discounted payoffs rather than walking away entirely, but more such deals could be in the offing. In the past 12 months, 318 loans backing retail real estate suffered losses totaling $1.85 billion, with the percentage of lost principal reaching 43.3%, according to data from Trepp LLC, a real-estate data provider.”
  • “Discounted payoffs are warranted in some situations, analysts said. Many malls with otherwise viable business operations are still carrying debts made during the boom years of 2006 and 2007, often at inflated valuations.”

Energy

FT – The Big Green Bang: how renewable energy became unstoppable – Pilita Clark 5/18

  • “These advances have become too significant for the oil and gas industry to ignore. In the first three months of this year, the heads of some of the world’s largest oil companies have spoken of a ‘global transformation’ (Saudi Aramco) that is ‘unstoppable’ (Royal Dutch Shell) and ‘reshaping the energy industry” (Statoil). Isabelle Kocher, chief executive of French power and gas group Engie, calls it a new ‘industrial revolution’ that will ‘bring about a profound change in the way we behave’.”
  • “None of this means the problem of climate change has been solved, or that fossil fuels will vanish in the near future. Oil, gas and coal still account for about 86% of the energy keeping the world’s lights on, cars running and homes warm — a share that has barely changed in 25 years. Coal and gas-fired power plants are still being built, especially in the developing world where 1.2bn people lack electricity.”
  • “Modern renewables, in contrast, are growing from a tiny base and are often less dependable than dirtier power generators that do not rely on the weather. Wind and solar power accounted for a puny 4.4% of global electricity in 2015, and big battery systems can only store enough power to satisfy a few seconds of global electricity demand, says the International Energy Agency. Electric vehicle sales last year were just 0.9% of all vehicles sold, according to the EV-Volumes consultancy.”
  • “But the emerging energy transition is already causing trouble for companies around the world, from write downs and shrinking sales to sliding share prices and wholesale break-ups:”
    • “In sunny Nevada, casino companies are unplugging from the state utility. NV Energy lost nearly 6% of its customer base virtually overnight in October after MGM Resorts International and Wynn Resorts agreed to pay a combined $103m to defect and buy their power elsewhere. MGM cited “the sharp decline in the cost of renewable energy” as a primary driver of its decision. Caesars later did a $47.5m deal to quit.”
  • “When the definitive history of the energy transition is written, the taxpayers of Germany will deserve their own chapter. They bankrolled the green energy revolution known as the Energiewende, pioneering generous subsidies nearly 20 years ago that helped drive renewables up from 9% of Germany’s electricity mix in 2004 to 32% last year.”
  • “As other European nations — and some US states — boarded the green power wagon, it kindled a wave of demand for wind turbines and solar panels that helped drive costs down worldwide. Solar’s price fall was especially steep after a Chinese manufacturing boom spurred global over-supply.”
  • “The result was doubly miserable for conventional fossil fuel generating companies: renewables crowded them out while simultaneously driving down wholesale power prices, causing billions of euros in losses.”
  • “’Renewables have reached a tipping point globally,’ says Simon Virley, head of power and utilities at KPMG. ‘A subsidy-free future is now in reach for a number of technologies and geographies.'”
  • “None of this means the future of clean energy will be entirely smooth. Indeed, its very success poses a raft of questions for governments that some have barely contemplated.”
  • “Chief among them: what to do with power markets that were never designed for millions of people turning their rooftops into mini power stations?”
  • “How to pay for upgrading grids to cope with the influx of all this renewable power? What to do about incumbent companies calling for the brakes to be slammed on to protect them from green power incursions? Then there is Mr. Trump, who is seeking to unwind the clean power policies of his predecessor.”
  • “In the rest of the world, however, the future of green power appears assured. So much so that an industry that has spent years on the defensive is beginning to show a rising sense of confidence.”
  • “’Fossil fuels have lost,’ says Eddie O’Connor, chief executive of Ireland’s Mainstream Renewable Power. ‘The rest of the world just doesn’t know it yet.’”

Asia – excluding China and Japan

FT- Thai junta nears third year and settles in for longer stay – Michael Peel 5/18

  • “Thailand’s ruling generals were supposed to quit within barely 18 months but they seem more firmly entrenched than ever as they prepare to celebrate the third anniversary of their May 2014 coup.”
  • “A country once among the more democratic in a mostly authoritarian region is now in its longest spell under hardline military rule for decades – and, as the junta flaunts a 20-year ‘reform’ plan, it seems more and more like the new normal.”

Canada

Economist – The end of Canada’s housing boom? 5/18