Tag: Apple

April 11, 2018

If you were only to read one thing…

WSJ – Americans Face Highest Pump Prices in Years – Stephanie Yang 4/8

  • “Americans are spending more at the pump than they have in years. Prices could rise even higher just as drivers hit the road for family vacations.”
  • “Crude prices have jumped thanks to continuing production cuts by major exporters. As a result, gasoline is also becoming more expensive. According to the U.S. Energy Information Administration, average regular retail gas prices reached $2.70 a gallon last week—the highest level since 2015.”
  • “While higher fuel prices could herald an end to the glut that has plagued the energy market since 2014, they also threaten to dampen demand and hit consumers in their pocketbooks.”
  • “Since the Organization of the Petroleum Exporting Countries and other major oil producers, including Russia, agreed to collectively limit output two years ago, U.S. oil futures have risen about 40%, closing at $62.06 a barrel on Friday. Gasoline futures are up 8.6% this year.”
  • And of course, Venezuela’s drop off in production…
  • “In recent months, the U.S. has also exported record amounts of gasoline, mostly to Latin and South America. In January, exports totaled more than 33 million barrels, near an all-time monthly high set in November.”
  • “’That’s a big difference from a decade ago, or even a few years ago,’ said Tom Kloza, global head of energy analysis at the Oil Price Information Service. ‘We’re kind of refiners to the entire Western Hemisphere right now.’”

Continue reading “April 11, 2018”

January 26, 2018

Perspective

statista – Is Airbnb Really Cheaper Than A Hotel Room? – Niall McCarthy 1/24

Visual Capitalist: TitleMax – A Decade of Grocery Prices for 30 Common Items – Jeff Desjardins 1/24

Worthy Insights / Opinion Pieces / Advice

Bloomberg – Dalio Says Bonds Face Biggest Bear Market in Almost 40 Years – Nishant Kumar and Erik Schatzker 1/24

CNNMoney – Here’s how much money Americans think you need to be wealthy in 10 major US cities – Kathleen Elkins 1/24

Economist – Why armed intervention is Venezuela is a bad idea – Bello 1/18

NYT – Apple Can’t Resist Playing by China’s Rules – Chen Guangcheng 1/23

  • This is in regard to providing its users’ (in China) data to Big Brother.

WSJ – GE Looks Ugly in Its Underwear – Spencer Jakab 1/24

  • “GE’s new transparency is welcome, but a focus on cash shows the company is probably no bargain even after its swoon.”

Markets / Economy

WSJ – Daily Shot: Central Bank Net Asset Purchases 1/25

WSJ – A Shortage of Trucks Is Forcing Companies to Cut Shipments or Pay Up – Jennifer Smith 1/25

Cryptocurrency

CNBC – Ratings firm issues first grades on cryptocurrencies, sparking outrage online and a cyberattack – Evelyn Cheng 1/24

WSJ – Hedge Funds Grow Wary of Cryptocurrency Mania – Gregor Stuart Hunter and Laurence Fletcher 1/24

Tech

FT – Germany threatens curbs on Facebook’s data use – Guy Chazan 1/24

  • “Antitrust investigation puts social network’s business model under scrutiny.”

Environment / Science

Economist – How China cut its air pollution 1/25

  • “The biggest polluters are state-owned, so government efforts to reduce concentrations of the smallest polluting particles have been effective.”

Health / Medicine

Economist – Obesity: not just a rich-world problem 1/24

  • YouTube video

Shipping

WSJ – A Brief History of Shipping – Costas Paris, Thomas Di Fonzo, and Liliana Llamas 1/24

  • Video

Britain

FT – ‘Sixty per cent of older buy-to-let loans will become loss making’ – James Pickford 1/24

  • “Tax relief changes will have a huge impact on landlords’ mortgages, report finds.”

China

Economist – China is getting tougher on Taiwan – Banyan 1/18

South America

WSJ – Daily Shot: Buenos Aires Stock Exchange Merval Index 1/24

  • Reforms in Argentina have been working.

January 19, 2018

Perspective

Freedom House – Freedom in the World 2018 – Democracy in Crisis 1/17

WSJ – Daily Shot: Maps on the Web – Global Fertility Rates 1/17

Worthy Insights / Opinion Pieces / Advice

The Atlantic – Raising a Social-Media Star – Taylor Lorenz 1/17

  • “The parents of teen internet celebrities get a crash course in a new kind of fame while trying to maintain boundaries for their newly rich and powerful children.”

Washington Monthly – How to Fix Facebook – Before It Fixes Us – Roger McNamee 1/7

  • “An early investor explains why the social media platform’s business model is such a threat – and what to do about it.”

WP – In Venezuela, money has stopped working – Francisco Toro 1/17

  • “Hyperinflation is disorienting. Five or six years ago, the 500 bolivars on the floor would’ve bought you a meal for two with wine at the best restaurant in Caracas. As late as early last year, they would’ve bought you at least a cup of coffee. At the end of 2016, they still bought you a cup of café con leche, at least. Today, they buy you essentially nothing … well, except for 132 gallons of the world’s most extravagantly subsidized gasoline.”
  • “Prices are now rising more than 80 percent per month, according to the opposition-led National Assembly’s Finance Committee. (The government itself stopped publishing official inflation data long ago.) At that rate, prices double every 34 days or so. Salaries lag far behind, leaving more and more of the country to face outright hunger. Thus, the looting.”
  • “Rule No. 1 of surviving hyperinflation is simple: Get rid of your money. Given the speed with which money is shedding its value, holding on to it means you’re losing out. The second you’re paid you run out as fast as you can to buy something – anything – while you can still afford it. It’s better to hold almost any asset than money, because assets hold their value and money doesn’t.”
  • “I think this is what’s so hard to wrap your mind around if you’ve never experienced hyperinflation. It sounds like it’s about prices rising fast, but it really isn’t. It’s about money breaking down. Under hyperinflation, money no longer works. It doesn’t store value. It just stops doing the basic things people expect money to do. It stops being something you want to have and turns into something you’ll do anything to avoid having: something so worthless you won’t even bend down and scoop it up off the floor while you’re looting.”

Markets / Economy

Bloomberg – Beware the $500 Billion Bond Exodus – Liz McCormick and Molly Smith 1/17

  • “For years, the likes of Apple Inc. and Microsoft Corp. have stashed billions of dollars offshore to slash their U.S. tax bills. Now, the tax-code rewrite could throw that into reverse.”
  • “The implications for the financial markets are huge. The great on-shoring could prompt multinationals — which have parked much of their overseas profits in Treasuries and U.S. investment-grade corporate debt — to lighten up on bonds and use the money to goose their stock prices. Think buybacks and dividends.”
  • “It’s hard to say how much money the companies might repatriate, but the size of their overseas stash is staggering. An estimated $3.1 trillion of corporate cash is now held offshore. Led by the tech giants, a handful of the biggest companies sit on over a half-trillion dollars in U.S. securities. In other words, they dwarf most mutual funds and hedge funds.”
  • “The $14.5 trillion Treasury market, of course, can absorb the selling pressure of even the largest corporate holders. There’s little to suggest multinationals will immediately liquidate their investments. Many analysts say companies, rather than selling, could just let their holdings gradually mature.”
  • “Yet even at the margin, a drop-off in demand could add to the government’s burgeoning funding costs. Not only are interest rates on the rise, but the most sweeping tax cuts in a generation, which could end up mostly benefiting shareholders, risk leaving the government with trillion-dollar shortfalls for years to come — an expense that taxpayers would ultimately have to bear.”
  • “And since Treasury yields are the global lending benchmark, any upswing could also ripple through the real economy in the form of higher rates on everything from credit cards to mortgages. Since September, 10-year yields have climbed over a half-percentage point, hitting a high of 2.595% this month.”
  • “Of course, it’s important to understand that for most multinationals, offshore cash is really only ‘offshore’ for accounting purposes. Under the old tax system, earnings attributed to foreign subsidiaries, often based in jurisdictions with low taxes or lax regulations like Ireland or Luxembourg, could be repatriated and remain earmarked as ‘held overseas’ — so long as it was stashed in U.S. securities. Apple, for example, manages its hoard from Reno, Nevada, where its internal investment firm, Braeburn Capital, is located.”
  • “’The term overseas cash can be a bit of a misnomer, as it doesn’t have to be overseas and in fact a lot of it isn’t,’ said Michael Cahill, a strategist at Goldman Sachs Group Inc. That should limit any appreciation in the dollar related to repatriation over the longer term.”
  • “Big multinationals have good reason to bide their time, according to Richard Lane, a senior analyst at Moody’s Investors Service. Because their debt investments are so extensive, companies could end up inflicting losses on themselves with any large-scale selling.”
  • “’I don’t think there will be a rush to the door by these companies to sell this debt and causing increasing yields and lower pricing,’ said Lane.”

WSJ – Apple Plans to Pay $38 Billion in Repatriation Taxes – Imani Moise 1/17

  • “It also said Wednesday it would spend more than $30 billion to create 20,000 jobs and open a new campus at a U.S. location to be announced later this year.”

Real Estate

WSJ – A Slowdown Is in Store for the Self-Storage Business – Peter Grant 1/16

  • “A flood of new supply is crimping growth in the self-storage sector.”

Finance

Bloomberg Gadfly – Discount Brokers Act Like Wall Street on Fee Conflicts – Nir Kalssar 1/16

  • “One sign of a frenzied stock market rally is a sharp outperformance of retail brokers.” – WSJ Daily Shot 1/18

Bloomberg – Venture Capital Investing Hits Highest Since Dot-Com Boom – Julie Verhage 1/8

Insurance

Economist – Natural disasters made 2017 a year of record insurance losses 1/11

  • “According to figures released on January 4th by Munich Re, a reinsurer, global, inflation-adjusted insured catastrophe losses reached an all-time high of $135bn in 2017. Total losses (including uninsured ones) reached $330bn, second only to losses of $354bn in 2011.”
  • “A large portion of the losses in 2011 was caused by one catastrophe: the earthquake and tsunami in Japan. Losses in 2017 were largely traceable to extreme weather. Fully 97% were weather-related, well above the average since 1980 of 85%.”
  • “Last year’s disasters were particularly concentrated in North America (including the Caribbean), with 83% of global losses; half of those were in America alone, hitting that country’s insurers particularly hard. Fitch, a ratings agency, expects the ‘combined ratio’ for American property-and-casualty insurers to rise from 100.7% in 2016, meaning costs and claim payouts just exceeded premium revenue, to 104.4% in 2017. That implies a substantial underwriting loss for the industry. Even Warren Buffett’s Berkshire Hathaway looks poised for its first full-year underwriting loss in 15 years. It took a $3bn hit from the three hurricanes and an earthquake in Mexico.”
  • “For all the gloom, the 2017 losses were also proof of the resilience of the reinsurance industry. Insurers have long spread catastrophe risk by taking out reinsurance policies. This time, reinsurers had such ample capital buffers that they are expected to suffer only a small dent, of around 5-7% of capital.”

WSJ – Millions Bought Insurance to Cover Retirement Health Costs. Now They Face an Awful Choice – Leslie Scism 1/17

  • “Battered by losses, long-term-care insurers hit policyholders with steep rate increases that many never saw coming.”
  • “Only a dozen or so insurers still sell the coverage, down from more than 100. General Electric Co. said Tuesday it would take a pretax charge of $9.5 billion, mostly because of long-term-care policies sold in the 1980s and 1990s. Since 2007, other companies have taken $10.5 billion in pretax earnings charges to boost reserves for future claims, according to analysts at investment bank Evercore ISI.”
  • “When sales of long-term-care insurance were ramping up in the 1980s and 1990s, companies thought they had found the perfect product for middle-class families—and that’s how they pitched it.”
  • “The annual premium was designed to hold steady until a claim was filed and premiums then halted, though the rates weren’t guaranteed. Many policies paid out benefits for life.”
  • “Families flocked to what seemed like affordable peace of mind that would save them from draining their lifetime savings, leaning on children or enrolling in the federal-state Medicaid program for the poor.”
  • “Long-term care often costs more than $100,000 a year a person, financial advisers say. The nationwide total exceeds $200 billion, according to analysts at LTCG, a third-party administrator of long-term-care policies.”
  • “Almost every insurer in the business badly underestimated how many claims would be filed and how long people would draw payments before dying. People are living and keeping their policies much longer than expected.”
  • “After the financial crisis hit, nine years of ultralow interest rates also left insurers with far lower investment returns than they needed to pay those claims.”

Cryptocurrency

Economist – Bitcoin is no longer the only game in crypto-currency town 1/13

  • “A new crypto-currency is born almost daily, often through an ‘initial coin offering’ (ICO), a form of online crowdfunding. CoinMarketCap, a website, lists about 1,400 digital coins or tokens, including PutinCoin, Sexcoin and InsaneCoin (worth $7m). Most are no more than curiosities, but by January 10th, around 40 had a market capitalization of more than $1bn.”
  • “Might any of these one day replace bitcoin as crypto-land reserve currency, something insiders call theflippening‘? Given bitcoin’s governance problems (another ‘fork’, or split, may be in the offing) and limited capacity (a transaction now costs nearly $30, on average, in fees), this cannot be excluded. But the others have problems, too. Ethereum’s user fees have soared and the system has again hit technical snags. As for Ripple, some question the extent to which XRPs are actually used.”

WSJ – Daily Shot: Ripple 1/17

WSJ – Daily Shot: Capital Economics – Transactions Per Second 1/17

Tech

Forbes – Which Online Platforms Do Americans Want Killed Off? – Niall McCarthy 1/10

China

Economist – How China won the battle of the yuan 1/11

Japan

Economist – A small Japanese city shrinks with dignity 1/11

  • Authorities in the Japanese city of Toyama are encouraging migration to its city center through incentives. The goal being to reduce the cost of maintaining lightly-used infrastructure as its population declines.
  • “About 30% of Toyama’s 418,000 residents are 65 or older, an even higher proportion than in Japan as a whole, where it is 27%. By 2025, the proportion in Toyama is projected to be 32%. In addition to greying, the population is also declining. The city had 421,000 people in 2005; by 2025, it will have 390,000.”
  • “As the population ages and shrinks, the services residents need have changed. The Kadokawa Centre, for example, is built on the site of a primary school that closed in 2004. But overhauling public services is costly, and the declining number of people of working age means there is ever less tax revenue to help pay for the shift. To remain solvent, the city has decided to shrink not just in population, but in size, concentrating residents and services in the center.”
  • “Most of Japan is in a similar quandary. About 400 schools shut every year; some are being converted into retirement homes. In 2016 there were 300,000 more deaths than births. If Japan continues on its present course, it will have shed nearly a third of its population (and four out of every ten workers) by … 2065.”

Economist – Why modern Japan’s founding moment still divides a nation – Banyan 1/11

  • “The Meiji restoration initiated not just modernization, but also militarism.”

South America

CNN Money – You can’t get $1 out of the bank in Venezuela. I tried. – Stefano Pozzebon 1/17

Reuters – Wave of looting shutters stores, spreads fear in Venezuela – Alexandra Ulmer and Anggy Polanco 1/17

November 3, 2017

Perspective

FT – Asian billionaires outnumber US ones for first time – Josef Stadler 11/1

FT – Global gender gap will take 100 years to close, says WEF study – Sarah Gordon 11/1

  • “The global gender gap will take 100 years to close at the current rate of change, according to new World Economic Forum research.”
  • “The WEF’s annual report into gender equality found increasing inequality at the workplace and in political representation, contributing to its calculation that it would take a century to reach overall gender parity compared with its estimate last year of 83 years.”
  • “According to the WEF’s metrics — which take into account disparities between men and women in health and education, as well as politics and the workplace — the world has closed 68% of the gap between total gender inequality and total equality.”
  • “This level is slightly worse than the figures for 2016 and 2015, when the gender gap was 68.3 and 68.1%, respectively, and represents the first widening of the gap since the WEF began such calculations 11 years ago.”
  • “Of the 142 countries covered in the 2017 report, the gender gap had increased in 82, with countries such as Kenya, Brazil, Japan and India regressing in terms of the number of women in ministerial roles, while countries including Mexico, South Africa and Spain made less progress towards offering women equal economic opportunities.”
  • “Iceland remains the world’s most gender-equal country, while the US dropped four places to 49 in the country rankings because, in particular, of a significant decline in the number of women holding ministerial positions. The US’s political empowerment measure is at its lowest level since 2007.”
  • “The top three countries in the index are all Nordic but among the non-European countries in the top ten are Rwanda in fourth place, Nicaragua in sixth place and the Philippines in tenth place.”
  • “The region of the world with the smallest gender gap is western Europe, which has closed 75% of the gap, followed by North America and eastern Europe.”
  • “The Middle East and north Africa is the lowest-ranked region, having closed the gap by an average of 60%, and is home to four of the world’s five lowest-ranking countries on female political empowerment: Kuwait, Lebanon, Qatar and Yemen.”

NYT – Trump’s Female Accusers Feel Forgotten. A Lawsuit May Change That. – Megan Twohey 11/1

Worthy Insights / Opinion Pieces / Advice

Economist – Donald Trump misreads Britain’s crime statistics 10/28

  • “Mr Trump is right to want to ‘keep America safe’ from such influences, even if he muddled his figures. Yet his approach is hardly achieving that. ‘Do you notice we are not having a gun debate right now? That’s because they used knives and a truck!’ he tweeted after the London Bridge attack. True enough. But whereas in the past five years 11 jihadists have launched fatal attacks in America, killing 82 of their 86 victims with bullets, during the same period nine jihadists in Britain, without access to guns, killed only 37, according to the Global Terrorism Database at the University of Maryland. America’s overall homicide rate is five times Britain’s. British crime statistics may well contain lessons for America, but not the ones Mr Trump claims.”

Economist – Apple should shrink its finance arm before it goes bananas – Schumpeter 10/28

  • “The world’s biggest firm has a financial arm half the size of Goldman Sachs.”

Markets / Economy

Economist – The future of online retailing is bright 10/26

  • “E-commerce will not obliterate all retail trade. Stores that are distinctive in one way or another—because they offer excellent service, for instance, or unique products—will remain. But consider the change already wrought in America, where e-commerce accounts for about one-tenth of retail spending. If that share were to rise to one-fifth, let alone one-third, the effects would be vast. In the longer run the impact of e-commerce will not be limited to the conventional retail industry it is increasingly replacing. It will also change how consumers spend their days, transform the landscape, disrupt workers’ lives and reshape governments’ view of corporate power.”
  • “For consumers, e-commerce has ushered in a golden age. They can choose from more products of better quality than ever and spend far less time and effort to get what they want. Once-complacent manufacturers must compete fiercely for their business. No wonder Amazon is the most popular company in America, according to a recent Harris poll.”
  • “As demand for physical shops ebbs, that for warehouses will surge. Citi estimates that 2.3bn square feet (214m square meters) of new warehousing—equivalent to about 20,000 football pitches—will be needed worldwide over the next 20 years.”
  • “The future for ailing stores is less certain. Many shops in big cities will remain, less as sales hubs than as showrooms. Rents for them will probably come down. Retail rents are already falling in America and in much of Asia, according to CBRE, a property agency.”
  • “An even hotter topic is the effect of all this on employment. So far the decline in traditional retail jobs in America seems to have been offset by a rise in warehousing work. Between 2007 and 2017 the number of retail jobs shrank by 140,000 while those in e-commerce and warehousing rose by about 400,000, according to Michael Mandel of the Progressive Policy Institute, a think-tank. But the net gain in jobs may be temporary. Stores are only now starting to close, and those that remain are just testing automation. More robots will be used in warehouses, too, as their costs come down and their picking skills improve.”
  • “Barring any dramatic intervention, however, the biggest e-commerce sites look set to get bigger. Amazon and Alibaba typify a new breed of conglomerate that benefits from network effects. The more shoppers firms can muster, the more sellers will flock to them, attracting yet more shoppers. These effects are turbocharged by the breadth of their businesses and the vast amount of data they generate. This does not mean they will dominate every sector or market, but their mere presence in an industry will reshape it. The question is not if they will keep upending retailing, manufacturing and logistics, but which industry and part of society they will change next.”

Real Estate

WSJ – World Record $5 Billion Skyscraper Sale a Tall Order – Jacky Wong 11/2

  • “Hong Kong’s richest person Li Ka-shing is selling the city’s center—literally.”
  • “The billionaire’s property firm CK Asset has agreed to sell its stake in The Center, a 73-storey skyscraper in Hong Kong’s central business district, for $5.15 billion, making it the world’s most expensive commercial building ever. The sale continues Mr. Li’s retreat from China and Hong Kong in recent years as he invests in sectors like utilities in developed markets such as Australia and the U.K. Last year, he sold a commercial property project in Shanghai for about $3 billion.”
  • “The major shareholder entity buying The Center is an oil company in which the Communist Party of China has an effective 15% stake.”

Finance

NYT – S.E.C. Warns Celebrities Endorsing Virtual Money – Nathaniel Popper 11/1

  • “The S.E.C. said in a statement released on Wednesday afternoon that celebrities who promoted coin offerings could be violating multiple laws, including antifraud regulations and rules that govern investment brokers.”

September 26, 2017

If you were to read only one thing…

NYT – How Did Marriage Become a Mark of Privilege? – Claire Cain Miller 9/25

  • “Marriage, which used to be the default way to form a family in the United States, regardless of income or education, has become yet another part of American life reserved for those who are most privileged.”
  • “Fewer Americans are marrying over all, and whether they do so is more tied to socioeconomic status than ever before. In recent years, marriage has sharply declined among people without college degrees, while staying steady among college graduates with higher incomes.”
  • “Currently, 26% of poor adults, 39% of working-class adults and 56% of middle- and upper-class adults are married, according to a research brief published today from two think tanks, the American Enterprise Institute and Opportunity America. In 1970, about 82% of adults were married, and in 1990, about two-thirds were, with little difference based on class and education.”
  • “A big reason for the decline: Unemployed men are less likely to be seen as marriage material.”
  • “As marriage has declined, though, childbearing has not, which means that more children are living in families without two parents and the resources they bring.”
  • “’The sharpest distinction in American family life is between people with a bachelor’s or not,’ said Andrew Cherlin, a sociologist at Johns Hopkins and author of Labor’s Love Lost: The Rise and Fall of the Working-Class Family in America.”
  • “Just over half of adolescents in poor and working-class homes live with both their biological parents, compared with 77% in middle- and upper-class homes, according to the research brief, by W. Bradford Wilcox and Wendy Wang of the Institute for Family Studies. 36% of children born to a working-class mother are born out of wedlock, versus 13% of those born to middle- and upper-class mothers.”
  • “The research brief defined ‘working class’ as adults with an adjusted family income between the 20th and 50th percentiles, with high school diplomas but not bachelor’s degrees. Poor is defined as those below the 20th percentile or without high school diplomas, and the middle and upper class as those above the 50th percentile or with college degrees.”
  • “Americans across the income spectrum still highly value marriage, sociologists have found. But while it used to be a marker of adulthood, now it is something more wait to do until the other pieces of adulthood are in place — especially financial stability. For people with less education and lower earnings, that might never happen.”
  • “Evidence shows that the struggles of men without college degrees in recent years have led to a decline in marriage. It has been particularly acute in regions where well-paying jobs in male-dominated fields have disappeared because of automation and trade.”
  • “’A bad economy lowers the cost of having bad values — substance abuse, engaging in crime, not looking for a job right away,’ said Gordon Hanson, an economist at the University of California, San Diego, who wrote the paper with David Autor of M.I.T. and David Dorn of the University of Zurich.”
  • “Never-married adults cite financial instability as a major reason for being single, especially those who are low-income or under 30, according to a new Pew Research Center survey. Most men feel it’s important for a husband to be a financial provider, especially men without college degrees, according to another new Pew survey.”
  • “Women, meanwhile, have learned from watching a generation of divorce that they need to be able to support themselves. And many working-class women aren’t interested in taking responsibility for a man without a job.”
  • “’They say, ‘If he’s not offering money or assets, why make it legal?’’ said June Carbone, a law professor at the University of Minnesota and the author with Naomi Cahn of Marriage Markets: How Inequality Is Remaking the American Family.”
  • “While researchers say it’s stability, not a marriage license, that matters for children, American couples who live together but don’t marry are generally less likely to stay committed.”
  • Clearly changing this momentum will take a lot. From an improved economy to strengthened cultural supports. A recommendation from Mr. Wilcox – “a bigger emphasis in high schools and pop culture on what’s known as the success sequence: degree, job, marriage, baby. ‘The idea is that if people follow that sequence, their odds of landing in poverty are much lower.'”

Perspective

NYT – The Best Investment Since 1926? Apple – Jeff Sommer 9/22

  • “The iPhone helped to catapult Apple into its position as the world’s most valuable publicly traded company. But now Apple has another and, arguably, more exalted stock market distinction.”
  • “In the history of the markets since 1926, Apple has generated more profit for investors than any other American company.”

Worthy Insights / Opinion Pieces / Advice

WSJ – Ray Dalio and the Market’s Pulse – Andy Kessler 9/24

  • “The core of investing is quite simple: Determine what everyone else thinks, and then figure out in which direction they are wrong. That’s it. No one tells you what they think. You’ve got to feel it.”
  • “It’s all about figuring out what is priced into a stock right now. That’s the pulse of the market, the collective mind meld aggregated into stock prices. I know from experience this is the hardest part of running a hedge fund. You can find the greatest story ever, but if everyone already knows it, there’s no money to be made.”
  • “And the pulse changes with each government statistic, each daily ringing of cash registers and satellite images taken of parking lots. That’s why stocks trade every day. Real-world inputs and the drifting pulse drive the psychotic tick of the stock market tape. Once you feel the pulse, then and only then can you figure out how everyone’s wrong about tomorrow, next month or next year. And believe me, they’re always wrong. Stocks rarely tread water.”
  • “How do you find that pulse? It’s hard enough to invest your IRA. Can you image managing $160 billion?”

FT – Plentiful oil will sustain the age of hydrocarbons – Nick Butler 9/24

  • “The aggregate message is that there is no shortage. Sporadic spikes and volatility will be driven by political instability but demand can be supplied at a relatively high level for many years to come. Oil is not going away any time soon. That will comfort those companies that are unprepared for the energy transition but is more disturbing in terms of emissions and climate change.”
  • “David Howell, the UK’s former energy secretary, writes in the new edition of his fascinating book on energy policy that there is a fundamental conflict between different views of the energy future — what he describes as the Black and the Green. That conflict will shape the public debate on energy for a long time to come. The age of hydrocarbons is far from over.”

Bloomberg Gadfly – Harvard Should Ignore the Freshman Slump – Nir Kaissar 9/25

  • “It doesn’t take fancy consultants to spot the problem. Harvard abandoned one of the stalwart adages in finance: Pick an investment philosophy and stick to it. With its revolving door of chief executives, the endowment has been anything but stable.”

Inc. – 6 High-Performance Habits Only the Most Extraordinary People Share, Backed by Science – Jeff Haden 9/19

Markets / Economy

WSJ – Daily Shot: Consumer Staples Selloff 9/25

  • Consumer push back against food incorporated.

Examples…

WSJ – Daily Shot: General Mills, Inc Stock Price 9/25

WSJ – Daily Shot: Kellogg Company Stock Price 9/25

WSJ – Daily Shot: Kraft Heinz Stock Price 9/25

FT – The return of the stock picker – Robin Wigglesworth 9/24

Energy

Bloomberg – In World’s Hottest Oil Patch, Jitters Mount That a Bust Is Near – Dan Murtaugh 9/25

  • “Ups and downs are so ingrained in this business that crazy success in the Permian Basin is seen as an omen that a crash looms.”

Finance

WSJ – The Global Stock Market’s Hidden Juice – Paul J. Davies 9/24

  • “One common sign of trouble ahead is people borrowing heavily to buy equities.”
  • “Investors should be worried then that stocks are being supported by record amounts of margin debt, according to research released last week from the Bank for International Settlements, the Switzerland-based central bank for central banks.”
  • “These kinds of loans secured against stocks have often proved dangerous in a downturn because when share prices fall borrowers are forced to sell.”
  • “In the U.S., margin debt is more than three-times the level ahead of the 2008 crisis and is greater even than its peak in 2000 before the dot-com crash, according to the B.I.S.”
  • “However, lending volume alone isn’t a clear indicator of risk because equity values have increased, too. In the U.S. at least, lending as a share of market capitalization has been relatively steady for the past four years, most recently at 2.12%. But that level is much higher than the period before 2007 and above even the dotcom-era peak of 2.05%.”
  • “Rich clients’ desire to borrow against stocks has been stoked by the low interest rates and rising stock markets. It is attractive for banks, too. Lending against shares is seen as less risky than mortgages because stocks can be sold more quickly than a house, so banks can hold less capital against margin loans. Also, if the borrowed money is invested with the bank, rather than spent on yachts or cars, that boosts assets under management.”
  • “The banks themselves all say that while lending looks high, their own approach is conservative and the general competition for clients is less aggressive than in the past. But neither the banks nor their investors have a full view of leverage across the system and the risk that may pose.”
  • “Equities have to fall 20% to 30% before margin loans are underwater. That protects the banks, but doesn’t stop a wave of selling to repay debt when a downturn comes. That could spell real pain for everyone else.”

WSJ – Leveraged Loans Are Back and on Pace to Top Pre-Financial Crisis Records – Christopher Whittall 9/24

Construction

San Gabriel Valley Tribune – California construction workers are among the highest paid in the nation – Kevin Smith 9/24

  • “Construction workers in California are among the highest paid in the nation, according to figures from the Bureau of Labor Statistics.”
  • “Fixr.com, an online website that provides cost guides, comparisons and other information for people looking to do remodeling or repair projects, crunched the Bureau of Labor Statistics numbers to create a state-by-state ranking of average hourly wages for workers in the industry.”
  • “California landed 10th on the list of the 10 Highest Wage States, with average hourly earnings of $21.26. Connecticut and Washington ranked just above California with slightly higher pay, and Hawaii and Illinois were tied for the top slot. Construction workers in both of those states earn an average of $27.01 an hour.”
  • “Massachusetts, followed with $25.84 an hour and New Jersey ranked fourth with an average hourly wage of $24.05. Construction workers in Arkansas are hurting the most, according to the report, as their average wage is just $12.38 an hour.”
  • “The national average wage for construction workers is $18.22 an hour, which equates to $37,897 a year. In California, construction workers earn an average of $44,221 a year.”
  • “Mike Balsamo, CEO of the Building Industry Association of Southern California, isn’t surprised that California ranks near the top. But he said wages can be considerably higher for someone with specific skills and more experience.”

China

NYT – As China Piles on Debt, Consumers Seek a Piece of the Action – Keith Bradsher and Ailin Tang 9/25

  • Get Chinese citizens to adopt the consumer and debt habits of the Americans. This has always been the goal – at least for the MNCs (Multi-National Corporations) and it takes a burden off the central government in regard to boosting demand.

FT – China property developers dip on new sales restrictions – Hudson Lockett 9/24

  • “Hong Kong-listed developers saw share prices drop on Monday as investors reacted to new property sales restrictions imposed across eight major Chinese cities in response to rising house prices.”
  • “The cities of Changsha, Chongqing, Guiyang, Nanchang, Nanning, Shijiazhuang, Wuhan and Xi’an had all tightened controls on housing sales since Friday, with state news agency Xinhua stating most had banned sales within two to three years of purchase.”
  • “Authorities in Shijiazhuang imposed particularly strict limits, requiring home buyers to wait for five years before reselling property.”

Puerto Rico

NYT – Puerto Rico’s Agriculture and Farmers Decimated by Maria – Frances Robles and Luis Ferre-Sadurni 9/24

  • “There is no more agriculture in Puerto Rico. And there won’t be any for a year or longer.” – Jose A. Rivera, farmer
  • “In a matter of hours, Hurricane Maria wiped out about 80% of the crop value in Puerto Rico — making it one of the costliest storms to hit the island’s agriculture industry, said Carlos Flores Ortega, Puerto Rico’s secretary of the Department of Agriculture.”
  • “Plantain, banana and coffee crops were the hardest hit, Mr. Flores said. Landslides in the mountainous interior of the island took out many roads, a major part of the agriculture infrastructure there.”
  • “The island suffered a loss of $780 million in agriculture yields, according to the department’s preliminary figures. Hurricane Georges in 1998 wiped out about 65% of crops and Hurricane Irma, which only grazed the island, took out about $45 million in agriculture production.”
  • “Puerto Rico already imports about 85 percent of its food, and now its food imports are certain to rise drastically as local products like coffee and plantains are added to the list of Maria’s staggering losses. Local staples that stocked supermarkets, school lunchrooms and even Walmart are gone.”

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.”

May 10, 2017

If you were to read only one thing…

NYT – How Homeownership Became the Engine of American Inequality – Matthew Desmond 5/9

  • “There is a reason so many Americans choose to develop their net worth through homeownership: It is a proven wealth builder and savings compeller. The average homeowner boasts a net worth ($195,400) that is 36 times that of the average renter ($5,400).”
  • “People who are living in a middle- to-lower-class system, there’s no progressing. You’re stuck in that system. I don’t have subsidies. I work, but I feel stuck in this cycle and can barely make ends meet.’’ – Crisaliz Diaz, renter
  • Trying to get subsidized housing? Good luck.
  • “The last time Boston accepted new applications for rental-assistance Section 8 vouchers was nine years ago, when for a few precious weeks you were allowed to place your name on a very long waiting list. Boston is not atypical in that way. In Los Angeles, the estimated wait time for a Section 8 voucher is 11 years. In Washington, the waiting list for housing vouchers is closed indefinitely, and over 40,000 people have applied for public housing alone. While many Americans assume that most poor families live in subsidized housing, the opposite is true; nationwide, only one in four households that qualifies for rental assistance receives it. Most are like Diaz, struggling without government help in the private rental market, where housing costs claim larger and larger chunks of their income.”
  • “Almost a decade removed from the foreclosure crisis that began in 2008, the nation is facing one of the worst affordable-housing shortages in generations. The standard of “affordable” housing is that which costs roughly 30% or less of a family’s income. Because of rising housing costs and stagnant wages, slightly more than half of all poor renting families in the country spend more than 50% of their income on housing costs, and at least one in four spends more than 70%. Yet America’s national housing policy gives affluent homeowners large benefits; middle-class homeowners, smaller benefits; and most renters, who are disproportionately poor, nothing. It is difficult to think of another social policy that more successfully multiplies America’s inequality in such a sweeping fashion.”
  • In 2015, “the federal government dedicated nearly $134 billion to homeowner subsidies. The MID accounted for the biggest chunk of the total, $71 billion, with real estate tax deductions, capital gains exclusions and other expenditures accounting for the rest. That number, $134 billion, was larger than the entire budgets of the Departments of Education, Justice and Energy combined for that year.”
  • As a homeowner myself, I fully attest to the wealth effect. While I greatly appreciate the MID, I would understand if it went away.
  • “When we think of entitlement programs, Social Security and Medicare immediately come to mind. But by any fair standard, the holy trinity of United States social policy should also include the mortgage-interest deduction — an enormous benefit that has also become politically untouchable.”
  • “The MID came into being in 1913, not to spur homeownership but simply as part of a general policy allowing businesses to deduct interest payments from loans. At that time, most Americans didn’t own their homes and only the rich paid income tax, so the effects of the mortgage deduction on the nation’s tax proceeds were fairly trivial. That began to change in the second half of the 20th century, though, because of two huge transformations in American life. First, income tax was converted from an elite tax to a mass tax: In 1932, the Bureau of Internal Revenue (precursor to the I.R.S.) processed fewer than two million individual tax returns, but 11 years later, it processed over 40 million. At the same time, the federal government began subsidizing homeownership through large-scale initiatives like the G.I. Bill and mortgage insurance. Homeownership grew rapidly in the postwar period, and so did the MID.”
  • “By the time policy makers realized how extravagant the MID had become, it was too late to do much about it without facing significant backlash. Millions of voters had begun to count on getting that money back. Even President Ronald Reagan, who oversaw drastic cuts to housing programs benefiting low-income Americans, let the MID be. Subsequent politicians followed suit, often eager to discuss reforms to Social Security and Medicare but reluctant to touch the MID, even as the program continued to grow more costly: By 2019, MID expenditures are expected to exceed $96 billion.”
  • “’Once we’re in a world with a MID, says Todd Sinai, a professor of real estate and public policy at the University of Pennsylvania’s Wharton School, ‘it is very hard to get to a world without the MID.’ That’s in part because the benefit helps to prop up home values. It’s impossible to say how much, but a widely cited 1996 study estimated that eliminating the MID and property-tax deductions would result in a 13% to 17% reduction in housing prices nationwide, though that estimate varies widely by region and more recent analyses have found smaller effects. The MID allows home buyers to collect more after-tax savings if they take on more mortgage debt, which incentivizes them to pay more for properties than they could have otherwise. By inflating home values, the MID benefits Americans who already own homes — and makes joining their ranks harder.”
  • “The owner-renter divide is as salient as any other in this nation, and this divide is a historical result of statecraft designed to protect and promote inequality. Ours was not always a nation of homeowners; the New Deal fashioned it so, particularly through the G.I. Bill of Rights. The G.I. Bill was enormous, consuming 15% of the federal budget in 1948, and remains unmatched by any other single social policy in the scope and depth of its provisions, which included things like college tuition benefits and small-business loans. The G.I. Bill brought a rollout of veterans’ mortgages, padded with modest interest rates and down payments waived for loans up to 30 years. Returning soldiers lined up and bought new homes by the millions. In the years immediately following World War II, veterans’ mortgages accounted for over 40% of all home loans.”
  • “But both in its design and its application, the G.I. Bill excluded a large number of citizens. To get the New Deal through Congress, Franklin Roosevelt needed to appease the Southern arm of the Democratic Party. So he acquiesced when Congress blocked many nonwhites, particularly African-Americans, from accessing his newly created ladders of opportunity. Farm work, housekeeping and other jobs disproportionately staffed by African-Americans were omitted from programs like Social Security and unemployment insurance. Local Veterans Affairs centers and other entities loyal to Jim Crow did their parts as well, systematically denying nonwhite veterans access to the G.I. Bill. If those veterans got past the V.A., they still had to contend with the banks, which denied loan applications in nonwhite neighborhoods because the Federal Housing Administration refused to insure mortgages there. From 1934 to 1968, the official F.H.A. policy of redlining made homeownership virtually impossible in black communities. ‘The consequences proved profound,’ writes the historian Ira Katznelson in his perfectly titled book, When Affirmative Action Was White. ‘By 1984, when G.I. Bill mortgages had mainly matured, the median white household had a net worth of $39,135; the comparable figure for black households was only $3,397, or just 9 percent of white holdings. Most of this difference was accounted for by the absence of homeownership.‘”
  • “This legacy has been passed down to subsequent generations. Today a majority of first-time home buyers get down-payment help from their parents; many of those parents pitch in by refinancing their own homes… Differences in homeownership rates remain the prime driver of the nation’s racial wealth gap. In 2011, the median white household had a net worth of $111,146, compared with $7,113 for the median black household and $8,348 for the median Hispanic household. If black and Hispanic families owned homes at rates similar to whites, the racial wealth gap would be reduced by almost a third.”
  • “Racial exclusion was Roosevelt’s first concession to pass the New Deal; his second, to avoid a tax revolt, was to rely on regressive and largely hidden payroll taxes to fund generous social-welfare programs. A result, the historian Michelmore observes, is that we ‘never asked ordinary taxpayers to pay for the economic security many soon came to expect as a matter of right.’ In providing millions of middle-class families stealth benefits, the American government rendered itself invisible to those families, who soon came to see their success as wholly self-made. We forgot because we were not meant to remember.”
  • “So why do we keep this ‘poor instrument’ around, if the overarching goal of American federal housing policy is to create a nation of homeowners? Perhaps because the MID enjoys entrenched, unyielding support from a powerful real estate lobby. We often discuss the influence of the gun and pharmaceutical lobbies, but the real estate lobby has spent much more than either group. According to the Center for Responsive Politics, the National Association of Realtors spent $64.8 million in lobbying efforts in 2016, making it second only to the U.S. Chamber of Commerce in terms of dollars spent. And to 1.2 million Realtors, the mortgage-interest deduction is nonnegotiable. The association calls it a ‘remarkably effective tool that facilitates homeownership.’ Jerry Howard, the chief executive of the National Association of Home Builders, refers to the MID as ‘one of the cornerstones of American housing policy.’ Of course, industry groups have a responsibility to their members, who enjoy profiting from a government subsidy that increases the prices of homes they build and sell.”
  • Remove the MID or alter it by capping the value on the homes it applies to, etc. The article goes on to discuss the arguments – worth the read.
  • “In some markets, there are virtually no affordable units left. The median annual rent for a two-bedroom apartment is currently $39,600 in Boston, $49,200 in New York City and $54,720 in San Francisco. Families priced out of large cities have moved to smaller ones, and now those cities are experiencing some of the steepest rent increases in the nation. The poor used to live on the other side of the tracks. Now they live in different towns and counties entirely.”
  • Of course those different towns are jacking rents with all of this new demand.
  • “And yet we continue to give the most help to those who least need it — affluent homeowners — while providing nothing to most rent-burdened tenants. If this is our design, our social contract, then we should at least own up to it; we should at least stand up and profess, ‘Yes, this is the kind of nation we want.’ Before us, there are two honest choices: We can endorse this inequality-maximizing arrangement, or we can reject it. What we cannot do is look a mother like Diaz in the face and say, ‘We’d love to help you, but we just can’t afford to.’ Because that is, quite simply, a lie.”

Perspective

WSJ – Daily Shot: California Economy 5/8

  • “Other than the US, only these four nations have an economy larger than California’s.”

Worthy Insights / Opinion Pieces / Advice

The Reformed Broker – Into the teeth of the next bear – Joshua Brown 5/9

  • “What will happen into the teeth of the next 20% stock market decline?” …

Bloomberg View – Puerto Rico Must Not Waste Its Second Chance – Michael Bloomberg 5/9

The Registry – McNellis: The Death of Retail? – John McNellis 5/9

Markets / Economy

WSJ – Daily Shot: Apple Market Cap 5/8

  • And it keeps on getting higher…

FT – China: not such a champion of global trade – Silvia Pavoni 5/8

  • “China’s championing of globalization should be great news for exporters in Latin America, where trade with the Asian giant has ballooned since the early 2000s. But trade growth has stalled and, according to the Inter-American Development Bank (IDB), this is not only because of the bursting of the commodities bubble. High tariffs and other barriers both in China and in Latin America show that free-trade rhetoric has yet to be matched by action.”
  • “In a recent report, Uncovering the Barriers of the China-Latin America and Caribbean Trade, the IDB details tariffs and other ‘discriminatory’ policies afflicting the relationship. Their presence has contributed to a decline in trade between the two, which slowed to $247bn in 2016, a 7% drop from the previous year and the third consecutive annual fall.”
  • “According to the IDB, Latin America’s farmers have been hit particularly hard. Beijing imposes tariffs of 17.3% on agricultural produce from Argentina, 17% on that from Brazil and 16.1% from Mexico, compared with its average tariffs of 13.4% for the farm sector worldwide. The difference matters: soya alone represents a fifth of the region’s total exports to China.”
  • “’During the [commodity] boom years, Latin American countries were very passive, they just sort of expected Chinese demand to continue endlessly and didn’t do much to diversify exports, with [only a few] exceptions,’ says Carlos Casanova, Hong Kong-based economist at BBVA. ‘You keep on hearing ‘la fiesta se acabo’ [the party is over]. I think Latin America is coming to grips with the fact that the Chinese economy is rebalancing and that they need to diversify the export basket.’”

Real Estate

WSJ – Daily Shot: FRED – Tightening Credit Standards for Multifamily Sector 5/8

  • “In commercial real estate, the multi-family sector continues to struggle as banks tighten lending standards (chart below) while demand wanes (second chart below). These trends will be reflected in slowing multi-family housing starts.”

Finance

Bloomberg – A New Paper Just Took a Huge Shot at Some of the World’s Hottest Investments – Eric Weiner 5/8

  • “Looking at 447 supposedly repeating price patterns identified in the last few decades, academics from Ohio State and the University of Cincinnati contend that more than half are basically figments of their discoverers’ imagination. The study, ‘Replicating Anomalies’ by Kewei Hou, Chen Xue and Lu Zhang, attributed the findings to a statistical sleight of hand known as p-hacking.”
  • “While lodged squarely in the academic realm, the paper is a broadside against an area of research that has come to dominate financial economics and underpin both quantitative investing and smart beta exchange-traded funds. It joins a growing body of literature that suggests people looking for money-making opportunities within the market’s chaos often see what they want to see, or confuse profitability with luck.”

Asia – excluding China and Japan

Bloomberg – China’s High Rollers Are Phoning In Big Bets to Manila Casinos – Daniela Wei and Bruce Einhorn 5/3

  • “Philippine casinos reported as much as 110% increases in VIP revenue from high-rollers – from $27 billion in bets placed last year, and possibly far more if off-books betting were tallied. Phone betting, also known as betting by proxy, has grown to account for as much as 85% of the business at some VIP rooms used by big spenders, according to people familiar with the operations who asked not to be identified as they’re not authorized to speak publicly.”
  • “While the Philippine Amusement and Gaming Corp., the casino regulator also known as Pagcor, permits phone betting, many other gambling centers ban it because of money-laundering concerns. Macau eliminated betting by proxy last year citing the risk. Not all Philippine casinos engage in proxy betting.”
  • “Unlike banks, insurance companies and other finance-related firms that must comply with the Philippines’ anti-money laundering law, casinos are exempt from such reporting requirements – an issue the U.S. State Department called ‘an especially critical concern.'”
  • “Phone betting isn’t the only way the Philippines is trying to attract long-distance gamblers. The regulator issued 35 licenses for online betting operations restricted to foreigners outside the country, Andrea Domingo, chairman and chief executive officer of Pagcor, told a Senate hearing in February. The government expects to ‘make a lot of money’ from these licenses, Domingo said.”

China

Bloomberg Businessweek – China’s Booming Service Industry Can’t Keep Up With College Grads – Dexter Roberts 5/4

  • “Service industries, which employ 43% of all Chinese workers, are creating few jobs fit for college graduates.”

South America

FT – Hidden numbers reveal scale of Venezuela’s economic crisis – Valentina Romei 5/8

  • “A country that in 1980 had the highest GDP per capita in Latin America is no longer in the top 10 and its economy is smaller than those of Colombia, Chile and Peru, the IMF data show.”
  • A picture is worth a thousand words…

May 2, 2017

Perspective

BuzzFeed – Young People Are Struggling, So Furniture Stores Target “The Bank Of Mom And Dad” – Matthew Zeitlin 4/30

  • “The financial crisis and weak economic recovery locked millions of young people out of the labor force, and for many who do have jobs, they’re not particularly well-paying ones. Those jobs leave people burdened by student loans and unable to build up the cash needed to get a place of their own.”
  • Rather than focusing on selling millennials, focus on their parents.

WSJ – Apple’s Cash Hoard Set to Top $250 Billion – Tripp Mickle 4/30

Markets / Economy

WSJ – From Diapers to Soda, Big Brands Feel Pinch as Consumers Pull Back – Sharon Terlep and Annie Gasparro 4/26

Real Estate

FT – Australia record home sale highlights bubble risks – Jamie Smyth 4/30

Finance

FT – US credit card stocks sink to fresh lows – Alistair Gray 4/30

  • “US credit card stocks have hit new lows for the year after figures in recent days from three of the biggest providers — Synchrony, Capital One and Discover — showed they set aside 36%, or $1bn, more for bad loans in the first quarter than a year ago.”
  • “Weaker than forecast financial results on Friday from Synchrony Financial, a $90bn-in-assets issuer that provides cards for retailers including Walmart and Amazon, pushed its shares down 16% and sent a chill through the wider sector.”
  • “Just three months after the company forecast that net charge-off — or writedown — rates would come in at no more than 5% this year, Synchrony said it now expected they would in fact be at least that high.”

FT – Interest-free credit cards a ‘ticking time bomb’, bankers fear – Emma Dunkley 4/30

Health / Medicine

FT – Cancer pill costs soar as drug companies retain pricing power – David Crow 4/30

Africa

FT – Ghana crackdown on illegal gold mining inflames tensions with Beijing – Maggie Fick 4/30

April 22 – April 28, 2016

Even Apple isn’t immune to Chinese oversight. China debt load is piling high. Retailer existential crisis.

Headlines

Briefs

    • Despite the growing number of bond defaults in China, “the fact is that China has the tools to manage these ‘defaults’ one way or another. As UBS’s Wang Tao has said, ‘the country’s high domestic saving, under-developed capital markets, government ownership  of banks and many larger borrowers, and relatively closed capital account mean that no one can easily ‘pull the plug’ on its credit cycle.'”
    • “More broadly, not much has changed in China in recent months…it remains a big, slowing economy, with a lot of debt, and all other things equal remains a deflationary force on the global economy (keeps commodity prices much lower than recent years). And most likely China continues to follow Japan in 1990s…periodically nasty for global financial markets but most of the time domestic policy keeps any problems local, and as with Japan it very rarely has a big negative impact on global growth. Latter changes of course with a genuine credit crunch.” 
  • While Keohane has a point, it doesn’t mean that toxic debt is anything other than that as Anjani Trivedi points out in the Wall Street Journal Why China Will Struggle to Turn Toxic Loans into Beautiful Bonds.
    • “The People’s Bank of China said recently one of its top priorities for the year is to advance a program to let banks securitize toxic loans into asset-backed securities, a type of bond. Unlike subprime bonds that triggered the financial crisis in the U.S., the banks openly acknowledge the loans are terrible before the bond is created.” 
    • “The last rub is that the banks will be managing the loans that make up these new securities. If they couldn’t work them out when they were on their balance sheets, investors should wonder what will make them be able to when they are packaged in a bond.”
  • Further, don’t forget about accounts receivables… Gabriel Wildau with the Financial Times highlights the growing amounts of unpaid bills from receivables.
    • “Listed companies had to wait a median 70 days to receive payment last year, the longest delay in 14 years, as cash flows tightened amid slack final demand. That compares with a median 60 days in 2014 and 46 days in 2011, according to Wind Information, a Chinese financial database.” 
    • “Ms Yu (Shanghai Caison Color Material Chemical) says that an increasing share of customers now insist on paying with a bankers’ acceptance rather than cash. Similar to a postdated check, bankers acceptances are a kind of IOU from a company and its bank. Ms Yu says that a few years ago, 5 to 10% of her sales were paid this way, but that has now risen to 20 to 30%. Most cannot be cashed for 90 or 180 days.”
    • “It looks like liquidity is very ample, but a lot of that is being used to help the real estate sector refinance. It’s not circulating widely through the economy.” – Shao Yu, economist at Oriental Securities in Shanghai.
  • Sorry if it feels like I’m harping on China here…not intentional.  Edward Wong of the New York Times points to a new set of rules that will restrict operations of foreign Non-Government Organizations (NGOs) in China starting January 1, 2017.
    • “More than 7,000 foreign nongovernmental groups will be affected, according to state news reports.” 
    • “Foreign groups working across Chinese civil society – on issues including the environment, philanthropy and cultural exchanges, and possibly even in educations and business – will now have to find an official Chinese sponsor and must register with the police.
    • “Those organizations that do not receive official approval will be forced to stop operating in the country. Many groups will probably curtail or eliminate programs deemed politically sensitive, such as training lawyers, in order to remain.”
    • “The new law is the latest in a series of actions taken by Mr. (President) Xi against the kind of Western influences and ideas that he and other leaders view as a threat to the survival of the Communist Party, such as an independent judiciary and media.”
    • “The most draconian aspect of the earlier drafts remained, despite widespread outcry from foreign groups and governments. It requires that foreign nongovernmental organizations register with the Ministry of Public Security and allow the police to scrutinize all aspects of their operations, including finances, at any time.”
    • “The law states that any employee of such a group can be interrogated at any time.”
  • Back to the U.S… John Authers of the Financial Times drew attention to the rising use of debt by U.S. corporates over the past few years for stock buy-backs and acquisitions that are starting to be more of an issue now that earnings are stalling.
    • “According to Andrew Lapthorne of Societe Generale, the reality is that “US corporates appear to be spending way too much (over 35% more than their gross operating cash flow, the biggest deficit in over 20 years of data) and are using debt issuance to make up the difference.” The decline in earnings and cash flows in the past year has accentuated the problem, and brought it to the top of investors’ consciousness.” 
    • “A further issue is the uses to which the debt has been put. As pointed out many times in the post-crisis years, it has generally not gone into capital expenditures, which might arguably be expected to boost the economy. It has instead been deployed to pay dividends, or to buy back stock – or to buy other companies. Shifts in these uses of cash are now affecting markets.”

Special Reports

  • Knowledge @ Wharton – PIMCO’s Former CEO Mohamed El-Erian on the ‘Delusion of Liquidity’ 4/21
    • “In a world where you’re facing this T junction, you need three things. You need resilience. You need agility. And you need optionality. And I go through them in the book – resilience, agility, and optionality. The only thing that gives you these three things is cash. So suddenly cash becomes a part of the strategic asset allocation, which again is putting conventional wisdom on its head.” 

Graphics

FT – SOE you think you can default? – David Keohane 4/21

FT_Source of Chinese bond money_4-21-16

FT_Accumulated shadow banking defaults - China_4-21-16

FT – China debt load reaches record high as risk to economy mounts – Gabriel Wildau and Don Weinland 4/23

FT_China debt woes - annual change_4-23-16

FT_China debt ratio_4-23-16

FT – Alphaville: “What if China lands hard?” they asked in 2013 – David Keohane 4/27

FT_Credit Expansion in China_4-27-16

FT – Unpaid bills add to China debt problems as receivables mount – Gabriel Wildau 4/26

FT_China accounts receivables_4-26-16

FT_China cash conversion cycle_4-26-16

FT – Alarm over corporate debt and stalled earnings 4/27

FT_Net Debt to Operating Cash Flow_4-27-16

Featured

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

Apple Services Shut Down in China in Startling About-Face. Paul Mozur and Jane Perlez. New York Times. 21 Apr. 2016.

Not only did Apple just have its first quarterly fall in sales in 13 years, but business is getting tougher for the corporate innovator in China – which is why legendary investor Carl Icahn just dumped his entire stake.

“Last week, Apple’s iBooks Store and iTunes Movies were shut down in China, just six months after they were started there.”

“China’s pushback against Apple shows that the company may finally be vulnerable to the heightened scrutiny that other American tech companies have faced in recent years.”

As reported by Xinhua, the state-run news service, President Xi is quoted as saying “China must improve management of cyberspace and work to ensure high-quality content with positive voices creating a healthy, positive culture that is a force for good.”

The news is the news.  Content is both good and bad…

“Since the Snowden leaks, China’s state media identified eight American companies that it has labeled guardian warriors and that it has said were too deeply established in the country’s core industries such as energy, communications, education and military.”

“Sales in China for those companies, including Cisco, IBM, Microsoft and Qualcomm, have slid as government oversight has increased. Some have grappled with raids, investigations and fines. Some have also been pressured to sell of holdings, hand over technology and work with local partners to expand their China business.”

“Though Apple is one of the eight, it has had a much easier time.”

“Apple’s recent battle with the F.B.I over unlocking an iPhone for a terrorism investigation is unlikely to help it in China. Chinese lawyers have pointed out that the country’s antiterrorism law requires companies to help with decryption when the police or state security agents demand it for investigating or preventing terrorist acts.”

China debt load reaches record high as risk to economy mounts. Gabriel Wildau and Don Weinland. Financial Times. 23 Apr. 2016.

In case you were wondering why Keohane felt the need to clarify why China has the tools to handle its debts, consider that “Beijing has turned to massive lending to boost economic growth, bringing total net debt to Rmb163tn ($25tn) at the end of March (237% of GDP according to the FT).”

“While the absolute size of China’s debt load is a concern, more worrying is the speed at which it has accumulated – Chinese debt was only 148% of GDP at the end of 2007.”

“New borrowing increased by Rmb6.2tn in the first three months of 2016, the biggest three-month surge on record and more than 50% ahead of last year’s pace, according to central bank data and FT calculations.”

“Economists say it is difficult for any economy to deploy productively such a large amount of capital within a short period, given the limited number of profitable projects available at any given time.”

For comparison, according to the Bank for International Settlements (BIS), Chinese debt at 249% of GDP, is “broadly comparable with the eurozone’s figure of 270% and the US level of 248%.”

“Economists widely agree that the health of the country’s economy is at risk. Where opinion is divided is on how this will play out.”

“At one end of the spectrum is acute financial crisis – a ‘Lehman moment’ reminiscent of the US in 2008, when banks failed and paralyzed credit markets. Other economists predict a chronic, Japan-style malaise in which growth slows for years or even decades.”

For those that believe in the likelihood of an acute financial crisis, a key concern is the amount of credit expansion that has occurred through high-yield wealth management products.  For the Japan-style scenario people point to the sheer amount of reserves the country has and the high savings rates of Chinese citizens.

Though, “it is wrong to assume that ‘too much debt’ is bad only if it causes a crisis, and this is a typical assumption made by almost every economist,” according to Michael Pettis, a professor at Peking University’s Guanghua School of Management.  Pettis points out “the most obvious example is Japan after 1990. It had too much debt, all of which was domestic, and as a consequence its growth collapsed.”

Department Stores Need to Cull Hundreds of Sites, Study Says. Suzanne Kapner. Wall Street Journal. 24 Apr. 2016.

Highlighting the existential crisis that the retail industry is facing is a report just put out by Green Street Advisors.  Essentially, “department store need to close hundreds of locations (roughly 800 or about 1/5 of all anchor space in U.S. malls) if they want to regain the productivity (sales per sq. ft.) they had a decade ago.”

“Sears Holdings Corp. alone would need to close 300, or 43%, of its Sears stores to regain the sales per square foot it had in 2006, adjusted for inflation, according to Green Street.”

WSJ_Department Store Excess Capacity_4-24-16

“Sales at the nation’s department stores averaged $165 a square foot last year, a 24% drop since 2006, according to company disclosures and Green Street estimates.”

But department stores are loathe to close physical locations considering many stores still make money, the physical locations facilitate their online sales within the same market, and when they do close stores it doesn’t mean that the same shoppers then migrate to their other retail channels.

“It may be unrealistic to expect that department stores could ever return to historical levels of sales or profits given the changing dynamics of retailing. Many retailers say they make less money selling goods online than they do in their physical stores. And with the Internet making it easier for consumers to comparison shop, discounts have become the norm.”

“The store glut has important implications for the country’s weaker malls, which rely on their anchors to drive foot traffic. ‘If department stores were to move forward and aggressively streamline their physical presence it could result in several hundred malls no longer being relevant retail destinations.’ – DJ Busch, senior Green Street analyst.”

Other Interesting Articles

The Economist

Bloomberg – Blackstone Weighs Opening Up Real Estate to Individual Investors 4/21

Bloomberg – Japan Post to Fight Negative Rates With Shift to Risk Assets 4/21

FT – China’s debt: not a cheap American copy 4/21

FT – Europe should forget Google and investigate its own shortcomings (Michael Moritz) 4/22

FT – Caterpillar says business in Brazil has ‘basically tanked’ 4/22

FT – US Reits: a sector to buy in May and then enjoy the summer 4/24

FT – Fund star Sudhir Nanda warns of threat to human role in finance 4/25

FT – Ant Financial raises $4.5bn in record fintech private placement 4/25

FT – China to unroll nationwide soil pollution survey 4/25

FT – Japan’s negative rate experiment is an alarm bell for the US 4/25

FT – Nigeria’s import curbs drain life from bustling Lagos ports 4/26

FT – Daniel Loeb warns of hedge fund ‘killing field’ 4/27

InvestmentNews – Schorsch’s AR Global looking to consolidate $10.5 billion of REITs 4/26

Mauldin Economics – Xi Jinping Takes Command of the People’s Liberation Army 4/25

NYT – Renewable Energy Stumbles Toward the Future 4/22

NYT – Fantasy Math Is Helping Companies Spin Losses Into Profits 4/22

NYT – Jimmy Buffett’s ‘Margaritaville’ Is a State of Mind, and an Empire 4/23

NYT – Don’t Blame Silicon Valley for Theranos 4/27

ValueWalk – Carl Icahn Dumps Entire Apple Inc. (AAPL) Stock, Blames China 4/28

WSJ – Everyone Wants a Raise – Except Investors 4/22

WSJ – Alphabet’s Next Big Thing: Building a ‘Smart’ City 4/26

WSJ – No One Believes It, but Inflation Is a Pretty Good Bet 4/27

WSJ – Chinese Property Giant Evergrande Invests in Financial Folly 4/28

WSJ – The U.S. Homeownership Rate Falls Again, Nearing a 48-Year Low 4/28

Zero Hedge – Why Goldman Expects The Japanese Yen To Collapse Within 12 Months 4/24