Bloomberg – Politicians Fiddle While Australia Burns – David Fickling 12/10/19
A symptom of the swine fever that ravaged the China pork population.
WSJ – Daily Shot: China CPI YoY – Pork & Beef 12/10/19
Tag: Australia
Perspective
howmuch.net – Hourly Wage Required to Rent a Two-Bedroom Home in Every State – Raul 5/13
Worthy Insights / Opinion Pieces / Advice
A Wealth of Common Sense – Do Long-Term Investors Need Bonds? – Ben Carlson 5/20
Economist – America must use sanctions cautiously – Leaders 5/17
- “The dollar gives the Treasury extraordinary power over global finance. It should not be used lightly.”
FT – Batteries are the next frontier of industrial competition – Nick Butler 5/20
- “Why the race is on to host the factories that will serve the electric vehicle market.”
FT – Tech lessons from Amazon’s battle in Seattle – Gillian Tett 5/17
Markets / Economy
FT – Ant Financial valued at $150bn in offering – Henny Sender and Louise Lucas 5/20
- “The enthusiasm for Ant Financial is partly a reflection of the scale of the company’s operations in China, as well as the need among investors to deploy huge funds being raised.”
- “’If you are too conservative, you lose a lot of opportunities,’ said one mainland Chinese investor, who is also involved in the transaction. ‘In the last few years, we were not gung-ho enough and left too much money on the table’.”
WSJ – Daily Shot: Moody’s – Youth Unemployment Rate – European Countries 5/21
Real Estate
FT Alphaville – Retail is not dead – Jamie Powell 5/20
This is one of the few instances when I’ve posted the article in its entirety…
- “Readers may have seen a few articles about the ‘DEATH OF RETAIL’ (add exclamation marks where appropriate) recently. To say it’s been a popular meme in US economic commentary would be, well, quite an understatement. Courtesy of CBInsights, here’s a timeline of retail bankruptcies up to March 2018:”
- “Bogey men blamed for the decline range from Amazon to pesky private equity to, erm, tourists. To get a feel for the distressed nature of the sector, as of March 2018, retailers make up nearly 20% of the companies which Standard & Poor’s awards a they-may-not-make-it CCC credit rating. In short, defaults are still coming.”
- “Yet is it all doom and gloom for bricks and mortar retail? Adam Ozimek, of Moody’s Analytics, begs to differ — laying out his case in a blogpost yesterday. Let’s take a look at his reasoning.”
- “First Mr Ozimek points to retail payrolls running at a near historical high at 15.3m jobs, only 22,000 positions short of the peak reached in 2017:”
- “The hiring boom is despite physical retail having a relatively smaller share of the economy from its peak in the credit-fueled boom years under Ronald Reagan:”
- “So retail is a touch less influential in the US economy, but it still a key supplier of jobs. Looking at the first chart, however, the doubling of retail jobs in absolute terms isn’t quite as impressive when you consider retail employment also came close to peaking in 2000, and since then the US economy has nearly doubled according to the St. Louis Federal Reserve:”
- “As physical retail’s share of the economy has fallen, there has been a bleeding of the value which used to be captured by the sector. However a lot of this shift can be explained by employment moving to e-commerce, according to Mr Ozimek:”
- “Employment gains in e-commerce are visible in warehousing and nonstore retailers, the latter of which includes e-commerce sellers like Amazon. Over the last decade, nonstore retailers have added 157,000 jobs and warehousing has added almost 369,000, which combined more than offset the job losses of 392,000 in department stores.”
- “So why are people so obsessed with the ‘Death of Retail’ meme?”
- “Perhaps one reason is the vast retail space left behind in the recent consolidation in the sector. Cowan Research recently found the US has circa 49 square feet of retail space per capita, double the UK’s 22 square feet and almost four times Canada’s 13 square feet.”
- “So in any retail contraction, the empty units left behind will be more noticeable to the naked eye than say in, Canada, thanks to the sheer amount of constructed retail space. This may give the impression of the death of retail, even if the facts don’t back it up.”
- “Public struggles for big brand names like Sears and JC Penny, which last year closed 141 stores, may also help re-enforce the impression of decrepitude.”
- “In fact, the former bastion of the mall, the department store, seems to be the only form of retail really struggling.”
- “Last year research house IHL published a compelling report titled ‘Debunking the Retail Apocalypse‘ (get a copy for free here) in which they helpfully chartered store openings versus closures across different types of retailer:”
- “We know this data is a little old, but department stores were the only group not to plan to open new stores in 2017, re-enforcing the idea that the collapse of famous brands, such as Radioshack, has driven the idea of bricks and mortar stores struggling.”
- “Our readers may be asking – who is doing well in this environment to offset the struggles of Sears, Kmart and Radioshack?”
- “The answer, perhaps unsurprisingly given trends in inequality, is any retailer shifting merchandise at bargain basement prices. Think Primark and Aldi in the UK, or aptly named Dollar General and Dollar Tree in the US. Here’s another neat chart from IWC showing store openings in 2017:”
- “Not exactly a sign of a healthy US consumer, right? This trend is also repeated across restaurants, with the cheap, convenient and filling providers of processed goodness leading the way:”
- “Regardless of the evident collapse in both diet and spending power, this data is not indicative of retail dying a death.”
- “A month ago, we published a piece examining the pivot many online only retailers, such as Warby Parker, are making to bricks and mortars stores. The reason? Stores are a surprisingly cheap way of acquiring affluent customers and building brand familiarity, compared with internet advertising.”
- “Given the data above perhaps the death of retail is more a misunderstanding of a sector adapting to demand not just from the internet, but also a lopsided societal structure. A country where affluent urbanites shop for luxury hand luggage in LCD lit stores, while the masses get by on Dunkin Donuts and Dollar General.”
Energy
Bloomberg Businessweek – Solar Beats Coal on U.S. Jobs – Brian Eckhouse 5/16
WSJ – Solar-Panel Makers Ramp Up U.S. Manufacturing Plans – Erin Ailworth 5/11
WSJ – Daily Shot: Moody’s – Clean Energy Initiatives by US State 5/21
Finance
FT – The great Maryland pension fees gap – Chris Flood 5/20
- However, in this case, it appears the drag is coming from elsewhere in the portfolio.
WSJ – U.S. Government Bonds Pay More Than Debt From Other Developed Nations – Daniel Kruger 5/20
WSJ – Daily Shot: Italy – Germany 10yr Government Bond Spread 5/18
Insurance
Economist – The life-insurance industry is in need of new vigor 5/17
- “As the rich world ages and retires, total life-insurance premiums are flat or falling…”
Australia
FT – Australia divided over ‘Brazilian-scale’ land clearance – Jamie Smyth 5/20
- “Pristine eucalyptus forest near Great Barrier Reef becomes political battleground.”
Other Interesting Links
Cannabis Benchmarks – State Price Delta to US Spot Index 5/18
Perspective
Worthy Insights / Opinion Pieces / Advice
- Visually stunning interactive income-mobility graphics.
Markets / Economy
WSJ – Wall Street Bankers Get Biggest Raise in Four Years – Telis Demos 3/26
Visual Capitalist – Wealth 101: Visualizing the Extraordinary Power of Compound Interest 3/28
Real Estate
WSJ – Retail Landlords Sell Assets to Raise Cash – Esther Fung 3/27
- “Shares of real-estate investment trusts have underperformed the broader equity market for the third year running, in part because of rising interest rates, which cause these dividend-paying stocks to lose some of their appeal.”
- “Because it would be difficult to issue new shares if REITs continue to trade at discounts, some are now compelled to sell assets to raise cash to help them reposition their remaining assets or fund share buybacks.”
- “REITs could sell individual assets, sell stakes in assets to other institutional investors and enter joint ventures where they also could earn some management fees, or be acquired entirely and privatized by an investor.”
- “Industry insiders noted that while there are more for-sale signs popping up, these sales aren’t driven by the need to reduce debt because REITs have been more disciplined since the financial crisis, so property prices aren’t likely to fall drastically.”
- “Listed REITs have been net sellers of assets since 2015, according to data from Real Capital Analytics. From January to March 23 of 2018, there were $6.91 billion in disposals, compared with $5.38 billion in acquisitions.”
- “Disposals topped acquisitions in 2017 and 2016, $60.9 billion to $56.1 billion and $71.4 billion to $48.4 billion respectively, Real Capital said.”
Energy
FT – Subsidy-free renewable projects on ‘cusp of breakthrough’ – Sylvia Pfeifer 3/27
- “In a few months’ time, if all goes to plan, designs will be drawn up for a wind farm that will be built 22km off the Netherlands’ coast. Once up and running in 2022, Hollandse Kust Zuid will be able to call itself Europe’s first offshore wind farm built without government subsidies.”
- “The wind farm, expected to be fully operational in 2023, will boast around 90 turbines that will deliver up to 750MW of power — enough to produce renewable electricity for up to 2m homes.”
WSJ – China Tries to Lift Yuan’s Profile With Oil Futures – Mike Bird 3/26
Finance
Investment News – Real estate fraudsters to repay $30 million to investors – Jeff Benjamin 3/28
- “SEC settles with McKinley Mortgage, which promised secure investments and 6% returns.”
WSJ – Daily Shot: Bianco Research – 5-trading day ETF Flows by category 3/28
Cryptocurrency / ICOs
WSJ – Daily Shot: Bitcoin 3/28
WSJ – Daily Shot: Charlie Bilello – Cryptocurrency Returns 3/28
Australia
FT – China academics divided over Australia influence crackdown – Jamie Smyth 3/27
- “Canberra’s proposed crackdown on Chinese government influence in Australia has prompted a bitter split among academics, following claims the policy is driven by racism and is stigmatizing Chinese Australians.”
- “A group of 35 China scholars based in Australia signed an open letter on Wednesday defending the Australian government’s efforts to identify and wind back Chinese Communist party (CCP) influence in the country.”
- “Canberra is proposing to ban foreign political donations and target covert, deceptive and threatening actions by foreign groups and individuals in response to alleged interference by the CCP in the country’s internal affairs and in Chinese diaspora communities.”
- “The letter said accusations of racism were a tool used by the CCP to silence the debate over foreign influence and drive a wedge between Chinese communities and the rest of Australia.”
China
- “After a two-year wait, Chinese regulators have revived a program allowing global asset managers including JPMorgan Chase to raise funds from Chinese onshore clients for investment in offshore hedge funds.”
- “The easing of capital controls shows how Chinese regulators are increasingly relaxed about cross-border capital flows amid a stable Chinese economy and persistent dollar weakness.”
- “JPMorgan Asset Management has received a new quota for the program, and several other asset managers are expecting similar allotments, according to three people familiar with the situation. JPMorgan received a $50m quota in January, one of those people said.”
Perspective
NYT – The Population Slowdown in the Outer Suburbs of the East and Midwest – Robert Gebeloff 3/21
Worthy Insights / Opinion Pieces / Advice
A Wealth of Common Sense – Headline Risk – Ben Carlson 3/21
Bloomberg Gadfly – The Saudi Aramco IPO Math Problem: Cash > Barrels – Liam Denning 3/15
- “Getting to a $2 trillion valuation requires some heroic assumptions.”
Bloomberg View – Before You #DeleteFacebook, Try Taking Control – Barry Ritholtz 3/21
- “A precept from the 1970s, said originally about television (back when TV was free), is applicable to technology and media: If you are not paying for a product, then you are the product.”
FT – Hard-headed deterrence is the antidote to Putin’s poison – Philip Stephens 3/14
FT – The low-paid workers cleaning up the worst horrors of the internet – Gillian Tett 3/16
- “A new film (The Cleaners) tracks outsourced workers in grim little cubicles watching the depravity that exists online.”
NYT – Trump Hacked the Media Right Before Our Eyes – Ross Douthat 3/21
- “…the business model of our news channels both assumes and heightens polarization, and that it was ripe for exploitation by a demagogue who was also a celebrity.”
NYT – Fox News Analyst Quits, Calling Network a ‘Propaganda Machine’ – Michael M. Grynbaum 3/20
NYT – Toys ‘R’ Us Case Is Test of Private Equity in Age of Amazon – Michael Corkery 3/15
Pragmatic Capitalism – Why are Money Managers Paid so Much? – Cullen Roche 3/20
- “Salesmanship. The answer is salesmanship. I’ve been in this business long enough to know that asset management is mostly about selling the hope of superior returns in exchange for the guarantee of high fees. The problem for the average person is that they don’t actually know enough about the asset management business to quantify whether their investment manager is worth the fees they pay. And in fairness, a big part of that is due to the fact that you have to compare yourself to a counterfactual that doesn’t exist since paying 1.6% per year to invest in a crappy active mutual fund is probably a better result than sitting in cash all the time because you’re too scared to get fully invested. Investment managers, as expensive as they are, at least keep you in the game and you need to be in the game to score any goals.”
Rational Radical – Royal commission shatters housing bubble façade – Matt Ellis 3/21
- Commentary on the Australian Housing market (read bubble)
- “Starting in May, Chinese citizens who rank low on the country’s burgeoning ‘social credit’ system will be in danger of being banned from buying plane or train tickets for up to a year, according to statements recently released by the country’s National Development and Reform Commission.”
- “With the social credit system, the Chinese government rates citizens based on things like criminal behavior and financial misdeeds, but also on what they buy, say, and do. Those with low ‘scores’ have to deal with penalties and restrictions. China has been working towards rolling out a full version of the system by 2020, but some early versions of it are already in place.”
- “The new travel restrictions are the latest addition to this growing patchwork of social engineering, which has already imposed punishments on more than seven million citizens. And there’s a broad range when it comes to who can be flagged. Citizens who have spread ‘false information about terrorism,’ caused ‘trouble’ on flights, used expired tickets, or were caught smoking on trains could all be banned, according to Reuters.”
Wolf Street – Then Why Is Anyone STILL on Facebook? – Wolf Richter 3/20
Markets / Economy
WSJ – Daily Shot: Nomura – Valuations of FANG-type stocks 3/20
WSJ – Daily Shot: Bianco Research – Breaking Down US Household Retirement Assets 3/21
Energy
WSJ – Daily Shot: Venezuelan Crude Oil Output 2/28
Finance
FT – John Paulson takes an axe to his struggling hedge fund – Robin Wigglesworth 3/16
- “Struggling hedge fund magnate John Paulson has taken an axe to his once-imperious firm, with several top executives departing in a ‘rightsizing’ this week after a string of heavy losses.”
- “Mr Paulson rose to fame after the crisis, when Paulson & Co made billions of dollars from predicting the US housing crisis and astute bets on complex credit derivatives. The hedge fund firm’s assets under management hit a peak of $38bn in 2011.”
- “But since then Paulson & Co has suffered a string of losses across most of its hedge funds, with its flagship merger arbitrage fund — Mr Paulson’s specialty — losing 18.1% and 23% in 2016 and 2017, respectively, according to the performance update of a mirror fund offered by Schroders.”
- “Paulson & Co’s assets have now shrunk to about $9bn, of which two-thirds is Mr Paulson’s own money, and this week the hedge fund manager let a string of employees go.”
- “Since making one of the biggest financial hauls in the industry’s history — Mr Paulson personally made almost $4bn from the financial crisis — the firm has made a series of ill-fated investments, such as on healthcare stocks, banks and gold and by betting against German bonds.”
- “The most high-profile recent mis-step was a big bet on drug maker Valeant Pharmaceuticals. Paulson & Co is the drug maker’s single biggest shareholder, but the stock has tumbled from a high of $262.50 in 2015 to just $16.80 this week — a loss of more than 93% over the period.”
- “Paulson & Co’s biggest public holdings, according to regulatory filings, are pharma companies Mylan, Shire, Valeant and Allergan, as well as an exchange-traded fund that tracks the price of gold. The gold ETF has lost about 32% of its value since the hedge fund’s investment peaked at $4.6bn in 2011.”
Health / Medicine
WSJ – Daily Shot: AEI – Geographic Variation in the Cost of the Opioid Crisis – Alex Brill 3/20
Other Interesting Links
FT – Wine’s Wild West: a tasting tour of Arizona – Horatia Harrod 3/16
- “In Scottsdale’s bars and out on the state’s grassy uplands, an industry wiped out by Prohibition is being revived.”
If you were to read only one thing…
NYT – How Big Business Go Brazil Hooked on Junk Food – Andrew Jacobs and Matt Richtel 9/16
- “A New York Times examination of corporate records, epidemiological studies and government reports — as well as interviews with scores of nutritionists and health experts around the world — reveals a sea change in the way food is produced, distributed and advertised across much of the globe. The shift, many public health experts say, is contributing to a new epidemic of diabetes and heart disease, chronic illnesses that are fed by soaring rates of obesity in places that struggled with hunger and malnutrition just a generation ago.”
- “The new reality is captured by a single, stark fact: Across the world, more people are now obese than underweight. At the same time, scientists say, the growing availability of high-calorie, nutrient-poor foods is generating a new type of malnutrition, one in which a growing number of people are both overweight and undernourished.”
- “Even critics of processed food acknowledge that there are multiple factors in the rise of obesity, including genetics, urbanization, growing incomes and more sedentary lives. Nestlé executives say their products have helped alleviate hunger, provided crucial nutrients, and that the company has squeezed salt, fat and sugar from thousands of items to make them healthier. But Sean Westcott, head of food research and development at Nestlé, conceded obesity has been an unexpected side effect of making inexpensive processed food more widely available.”
- “Part of the problem, he added, is a natural tendency for people to overeat as they can afford more food. Nestlé, he said, strives to educate consumers about proper portion size and to make and market foods that balance ‘pleasure and nutrition.’”
- “The story is as much about economics as it is nutrition. As multinational companies push deeper into the developing world, they are transforming local agriculture, spurring farmers to abandon subsistence crops in favor of cash commodities like sugar cane, corn and soybeans — the building blocks for many industrial food products. It is this economic ecosystem that pulls in mom-and-pop stores, big box retailers, food manufacturers and distributors, and small vendors like Mrs. da Silva.”
- “In places as distant as China, South Africa and Colombia, the rising clout of big food companies also translates into political influence, stymieing public health officials seeking soda taxes or legislation aimed at curbing the health impacts of processed food.”
- “For a growing number of nutritionists, the obesity epidemic is inextricably linked to the sales of packaged foods, which grew 25% worldwide from 2011 to 2016, compared with 10% in the United States, according to Euromonitor, a market research firm. An even starker shift took place with carbonated soft drinks; sales in Latin America have doubled since 2000, overtaking sales in North America in 2013, the World Health Organization reported.”
- “The same trends are mirrored with fast food, which grew 30% worldwide from 2011 to 2016, compared with 21% in the United States, according to Euromonitor. Take, for example, Domino’s Pizza, which in 2016 added 1,281 stores — one ‘every seven hours,’ noted its annual report — all but 171 of them overseas.”
- “Industry defenders say that processed foods are essential to feed a growing, urbanizing world of people, many of them with rising incomes, demanding convenience.”
- “’We’re not going to get rid of all factories and go back to growing all grain. It’s nonsense. It’s not going to work,’ said Mike Gibney, a professor emeritus of food and health at University College Dublin and a consultant to Nestlé. ‘If I ask 100 Brazilian families to stop eating processed food, I have to ask myself: What will they eat? Who will feed them? How much will it cost?’”
- “In many ways, Brazil is a microcosm of how growing incomes and government policies have led to longer, better lives and largely eradicated hunger. But now the country faces a stark new nutrition challenge: over the last decade, the country’s obesity rate has nearly doubled to 20%, and the portion of people who are overweight has nearly tripled to 58%. Each year, 300,000 people are diagnosed with Type II diabetes, a condition with strong links to obesity.”
- “’What we have is a war between two food systems, a traditional diet of real food once produced by the farmers around you and the producers of ultra-processed food designed to be over-consumed and which in some cases are addictive,’ said Carlos A. Monteiro, a professor of nutrition and public health at the University of São Paulo.”
- “’It’s a war,’ he said, ‘but one food system has disproportionately more power than the other.’”
- “Nearly 9% of Brazilian children were obese in 2015, more than a 270% increase since 1980, according to a recent study by the Institute for Health Metrics and Evaluation at the University of Washington. That puts it in striking distance of the United States, where 12.7% of children were obese in 2015.”
Worthy Insights / Opinion Pieces / Advice
FT – Tech companies in the city: the backlash – Leslie Hook 9/14
- “Cities and big tech companies usually do not get along very well. Just look at San Francisco or Seattle — many locals love nothing more than a good gripe against Google or Uber or Amazon.”
- “It’s been curious, then, to watch cities rush forward after Amazon said it was looking for a site to build a second headquarters in North America. Mayors from Pittsburgh to Chicago to Memphis have jumped on Twitter and on the phone to woo Amazon, promising their constituents they will work hard to win the company’s favor.”
Markets / Economy
Finance
NYT – China Bitcoin Exchange to Stop Trading Virtual Currencies Amid Crackdown – Cao Li 9/14
- “A major Chinese exchange specializing in the trading of Bitcoin announced on Thursday that it would stop trading by the end of the month, amid a broader crackdown against virtual currencies by the authorities in Beijing.”
- “The announcement by BTC China, the country’s first and largest digital currency exchange, came days after the Chinese authorities banned fund-raising for new digital currencies, and amid worries that regulators would tighten rules surrounding currencies like Bitcoin.”
- “The exchange’s decision is the first of its kind in China, and it raises the specter of other exchanges shutting down Bitcoin trading in the future.”
- “The price of Bitcoin dropped more than 10% on Thursday, to around $3,500, in the hours after the announcement.”
Bloomberg – The Summer of Bitcoin Ends Badly – Ogla Kharif and Belinda Cao 9/15
Australia
WSJ – Australian Banks Could Finally Head Down Under – Jacky Wong 9/15
- “Investors have been calling the Australian housing market a “bubble” for years, yet prices keep charting higher. The market, though, could finally be about to turn south. That won’t be pretty for the country’s banks.”
- “The property market has been skyrocketing Down Under—prices in Sydney have gone up 80% since 2012 while in Melbourne they have gained 54%. In turn, houses have become unaffordable for many Australians as prices keep outpacing income growth. An average home in Sydney now costs more than 12 times the median income there, according to research firm Demographia.”
- “To keep houses within the reach of buyers, banks seem to have loosened their lending standards. Home lending is big business for Australian banks—more than half of their loan books consist of residential mortgages, amounting to $1.2 trillion, a figure that has risen 47% in the past five years. Analysts say much of this new lending has been dubious: Around a third of Australian mortgage applications contain inaccurate information, resulting in around $400 billion of so-called Liar Loans, according to UBS.“
- “Nearly 40% of outstanding home loans are interest-only. The risk is that borrowers will be unable to repay these loans once their interest-only period expires.”
- “This is fine as long as the property market keeps going up, as homeowners can sell their houses to cover loan repayments. Once the market stops rising, though, it will become much harder for stretched households to avoid problems.”
- “Australian regulators are trying to cool the property market, by reining in the use of interest-only loans. But they face another difficulty. Tightened capital controls in China have dampened property demand in Australia, previously a popular venue for Chinese buyers. Direct overseas property investment from China plunged 82% in the first half globally, according to Morgan Stanley , with investors there finding it harder to get their money out of the country.”
South America
WSJ – Daily Shot: Venezuela Econ – Black Market Bolivares to USD exchange rate 9/15
Perspective
WSJ – Daily Shot: WEF – National per capita GDP without capital cities 9/5
Worthy Insights / Opinion Pieces / Advice
WSJ – Workers: Fear Not the Robot Apocalypse – Greg Ip 9/5
FT – Will stability become the new watchword for the oil market? – Anjli Raval 9/5
- “The oil world is divided into two camps.”
- “There are those who believe the crude price will eventually spike higher, repeating the boom-bust pattern that has defined the market for more than a century. Lined up against them are those betting prices will defy history, staying low and rangebound.”
- “Complicating the debate is that it hinges on a US shale industry that is barely a decade old and accounts for little more than 5% of global supplies. Can it really eliminate the risk of a price spike by growing fast enough to meet forecasts for rising demand?”
- “Of total global production at about 98m barrels a day, US crude output makes up 9.2m b/d with the country’s fast-growing shale segment comprising just 5.6m b/d, energy data show “
- “The mismatch is why drastic cuts to investment in future production have forced global energy bodies and exporter countries, such as Opec’s de facto leader Saudi Arabia, to warn of a looming supply gap.”
- “Historically about 15bn barrels of new supplies from conventional resources are approved for development each year, the International Energy Agency says. This fell to 8bn in 2015 and 5.5bn in 2016. Despite a rise to 8bn-9bn barrels this year, the IEA expects that global oil supply will still struggle to keep pace with demand after 2020.”
- “Global oil consumption is expected to grow on average by 1.2m b/d each year to 2022. The IEA’s forecasts also account for unconventional supplies as well as declining output rates from existing fields.”
- “Tim Gould, the IEA’s long-term supply analyst, accepts that US shale supply could increase ‘significantly’ from today’s levels. ‘But after that, large scale increases will be difficult to achieve. There is less of a chance that it can ramp up to fill any gap.'”
- “Proponents of this view, including hedge fund manager Pierre Andurand, say oil will return to $100 a barrel.”
- “But those confident the price will stay rangebound are not convinced. The fear — or hope — of an emerging supply gap is exaggerated, they say, and fails to acknowledge shale supply as a transformational force.”
- “’The oil market is indeed the most competitive it has ever been,’ said Ed Morse at Citigroup, who argues that US shale has broken the historically oligopolistic market structure.”
- “Rather than Opec’s production determining market balances, US shale is the new source of responsive supply. Mr. Morse argues the shale deniers are underestimating its prowess, from the geology to the technology allowing this oil to be unlocked.”
- “’There is just an unwillingness to understand shale. It’s a world that many still find alien,’ said Mr. Morse, who believes $45-$65 oil is likely to persist for years.”
- “Those pushing the lower-for-longer — and maybe forever — thesis also question the willingness of Opec producers and their allies to maintain supply curbs as production from the US to Canada’s oil sands and Brazil’s deepwater fields thrives.”
- “Unquestionably, US shale’s resilience has enabled it to surpass even the most bullish expectations. But Bob McNally at consultancy Rapidan Group said the industry had yet to prove itself as a ‘swing producer’, able to put a floor as well as a ceiling on prices. Volatility, he said, is the only certainty.”
- “Perpetual $50-$60 is as wrong now as endless $100 was four years ago.”
Real Estate
WSJ – Daily Shot: The 12 Most Expensive Rental Markets 9/5
Australia
Economist – How Australia broke the record for economic growth – E.A.D.W. 9/6
- “The last time Australia suffered a recession the web browser had just been invented and Bryan Adams topped the charts. Figures released today will show that its economy has racked up the longest stretch of growth in modern history: 104 quarters. The Netherlands, the previous title-holder, dipped into recession—defined as two consecutive quarters of contraction—after 103. In these 26 years, Australia has navigated the Asian financial crisis, the collapse of the dotcom bubble and the Great Recession, largely without scars. Its once-in-a-generation mining boom ended in 2014. Yet it has managed to avoid a bust…”
- “The luck seems set to continue. The central bank predicts that GDP growth will pick up to about 3% in the next couple of years. But families have reason to feel less optimistic. Unemployment rates have flat-lined above their equivalents in America, Britain and Japan. Underemployment (the number of people who would like more work) is close to record highs. Rising national income is not trickling down to workers: wage growth has fallen to about 1.9%, its slowest pace since the last recession. This is all the more uncomfortable because household debt has ballooned. Its ratio to GDP is close to 190%, one of the highest in the world. If the central bank raises interest rates, many families will have difficulties repaying their mortgages. For now, it is likely to do nothing—and the growth will go on.”
Europe
FT – Polish president warns ‘multi-speed’ EU will collapse – James Shotter and Jim Brunsden 9/5
- “Andrzej Duda says bloc would lose attractiveness for countries deemed ‘second class.'”
South America
- “Brazil’s attorney general on Tuesday charged former President Luiz Inácio Lula da Silva; his successor, Dilma Rousseff; and several other senior figures of the Workers’ Party with running a ‘criminal organization’ that raked in hundreds of millions in bribes during the party’s nearly 14-year reign.”
- “The attorney general, Rodrigo Janot, whose term ends this month, described the governments of Mr. da Silva and Ms. Rousseff as essentially fronts for a criminal enterprise through which senior politicians collected roughly $450 million from entities that included the state-run oil company Petrobras and the Brazilian National Development Bank. In addition to his conviction, Mr. da Silva has been charged in several other cases in which he stands accused of accepting bribes of relatively modest sums.”
- “But the 230-page charge sheet released Tuesday puts him at the center of a huge conspiracy. Mr. Janot wrote that the allegations should not be seen as a sign that the judiciary was ‘criminalizing politics’ or routine ‘political negotiations,’ but rather as a record of a ruling elite that systematically used public money to ‘buy popular support.’”
Perspective
Data Is Beautiful – Adult Obesity rates in the United States – zonination 6/20
Worthy Insights / Opinion Pieces / Advice
Project Syndicate – Brexit In Reverse? – George Soros 6/19
- “Economic reality is beginning to catch up with the false hopes of many Britons. One year ago, when a slim majority voted for the United Kingdom’s withdrawal from the European Union, they believed the promises of the popular press, and of the politicians who backed the Leave campaign, that Brexit would not reduce their living standards. Indeed, in the year since, they have managed to maintain those standards by running up household debt.”
A Teachable Moment – How Can We Fix a Broken 403(b) System? – Anthony Isola 6/21
Markets / Economy
Reuters – For thousands of U.S. auto workers, downturn is already here – Nick Carey 6/21
Real Estate
WSJ – Avocado Toast Looks a Better Bet Than Australian Housing – Jacky Wong 6/20
- “Chinese buyers have been gobbling up houses all over the world in recent years. There could be some nasty surprises when the buying stops.”
- “There are already signs of imminent pain for the global property market, thanks to China’s efforts to stop money pouring out of the country. Inquiries from China for foreign real estate fell 31% in the first quarter from a year ago, according to Juwai.com, a portal that connects potential Chinese buyers to property listings overseas. For some of the most popular destinations, the drop was even bigger—42% for the U.S. and 39% for Australia.”
- “The property market Down Under looks particularly vulnerable. China accounts for four in every five foreign buyers in Australia, with their interest a prime reason why home prices have surged to unaffordable levels: Prices in Sydney, for example, are up 72% since 2012.”
- “Some are waking up to the potential trouble ahead, with Australia’s household debt now nearing 200% of disposable income. Moody’s downgraded 12 Australian banks and their affiliates Monday, citing rising risks associated with the housing market, following a similar move by Standard & Poor’s last month. The country’s four biggest banks alone have a $1.1 trillion exposure to Australian housing loans, making up 55% of their total portfolios, according to Morgan Stanley.”
- “Worse still, nearly 40% of home loans now are interest-only, meaning borrowers don’t need to repay the principal for a certain period, usually five years. Such loans work fine when house prices keep rising. The worry now is that prices will start falling as Chinese buying interest wanes: Meanwhile, homeowners who have only had to pay interest on mortgages could see a rise in payments as the interest-only period on their loans expires.”
Energy
WSJ – Oil Returns to Bear Market – Stephanie Yang, Alison Sider, and Timothy Puko 6/20
- “Prices are down 20.6% since Feb. 23, marking the sixth bear market for crude in four years and the first since August. Crude prices have lost 62% since settling at $115.06 a barrel three years ago. A bear market is typically defined as a decline of 20% or more from a recent peak, while a bull market is a gain of 20% or more from a recent trough.”
Finance
FT – Argentina’s 100-year bond cannot defy EM playbook forever – Jonathan Wheatley 6/20
- “Really? A dollar-denominated bond that pays back 100 years from now, from a junk-rated country that has barely managed to stay solvent for more than half that time in its entire history as a creditor? While there is certainly an investment case for taking part, several analysts warn that this issue is a classic sign of a market getting ahead of itself.”
- “The point, though, is not the 100 years. The complexities of bond math mean that, once maturities go beyond 30 years, the investment case barely changes. Barring default, with a yield of nearly 8%, the bond will repay investors in full in about 12 years, all else (such as inflation) being equal — and that’s leaving aside its resale value. Many investors will have much shorter horizons.”
- “In a world starved of yield, the 7.91% on offer proved to be quite a pull and the bond attracted orders of $9.75bn for the $2.75bn issued. ‘People are looking out over the next 12 to 24 months and see a pretty positive outlook [for Argentina],’ says David Robbins, head of emerging markets at TCW in New York. ‘Duration in high yield is something they are more comfortable with.’ Argentina, he notes, is in effect selling equity in its economic recovery.”
- “Sérgio Trigo Paz, head of emerging market fixed income portfolio management at BlackRock, says the rationale and the pricing are all good. But, he adds: ‘When you put it into perspective, it gives you a sense of déjà vu.’”
- “He sees two scenarios. In one, the Fed is right about inflation and rates will continue to rise. This would turn the Argentine bond into ‘a bad experience’. In the other, markets are right, US inflation and payrolls will disappoint and we will be back in a low rate environment, which will be good for the bonds — until deflation rears its head again, hurting the Argentine economy and its ability to pay.”
- “In the meantime, he says, there is a ‘Goldilocks’ middle ground in which investors can suck up an 8% coupon. Beyond that: ‘It doesn’t look good either way — which is why you get an inflection point.'”
Japan
FT – Toshiba picks government-backed group as chip unit buyer – Kana Inagaki and Leo Lewis 6/20
- “After a chaotic months-long search for a buyer, Toshiba has picked a consortium led by a Japanese government-backed fund as the preferred bidder for its prized memory chip business.”
- “The group — which includes the Innovation Network Corporation of Japan fund, private equity group Bain Capital and the Development Bank of Japan — competed against rival offers topping ¥2tn ($18bn) from US chipmaker Broadcom and Apple supplier Foxconn.”
- “’Toshiba has determined that the consortium has presented the best proposal, not only in terms of valuation, but also in respect to certainty of closing, retention of employees, and maintenance of sensitive technology within Japan,’ the company said in a statement on Wednesday.”
South America
NYT – Venezuela Opens Inquiry Into a Critic: Its Attorney General – Nicholas Casey 6/20
- Long a Chavista, attorney general Luisa Ortega is being investigated now that she has expressed concern at how far those in power are willing to go to quiet dissent.
If you were to read only one thing…
- “The housing market’s comeback after the financial crisis has turned out to be a mixed bag.”
- “Prices have recovered to pre-housing-crisis levels. But with slow wage growth, that means there are fewer affordable houses available to buyers, especially in bigger cities.”
- “On the surface, the price trend ought to be good news for existing homeowners looking to sell. However, the likely rise in mortgage rates from historic lows means that there will be less incentive to move, according to Mark Fleming, the chief economist at First American.”
- “‘You do become a prisoner in your home because of rates,’ he told Business Insider.”
- “‘There’s going to be a growing challenge of an increasing financial penalty caused by the rate lock-in effect over time.'”
- “Since the 1980s, the long-term drop in interest rates created a built-in incentive to move, Fleming said. Even if a seller’s income was unchanged, it was possible to effectively move into a lower mortgage rate, and so be able to even afford a slightly bigger home.”
- “Now, the likelihood that rates will rise from historic lows has spurred the so-called rate lock-in effect: homeowners don’t sell because of the perceived or actual difference in their monthly mortgage payments if they swap their old rate for a new, higher one, Fleming said.”
- “In a market with tight inventory, the decision to sell depends on whether homeowners want to risk selling and then not being able to find a new home.”
- “‘The existing homeowner is trapped in this prisoner’s dilemma of the cooperative outcome,’ Fleming said. ‘If we all acted simultaneously, it would solve the problem. But we can’t take the risk of being the one that acts when everyone else doesn’t.'”
Perspective
FT – Central banks risk messy ‘market melt-up’ – Michael Mackenzie 5/26
Worthy Insights / Opinion Pieces / Advice
FT – The hidden dangers of passive investing – Renaud de Planta – 5/29
- “At first glance, it’s a persuasive argument. Poorly performing and expensive active managers have lingered in the system for too long, eroding returns for investors.”
- “Yet on deeper reflection, index-tracking products are no miracle remedy. They’re more like antibiotics: valuable when deployed in moderation, but likely to do more harm than good should their use become widespread.”
- “Indeed, if passive equity funds were to continue their present growth trajectory, they would own all listed stocks by 2030. That could threaten the free-market economy.”
- “Essentially, the industry is an oligopoly, dominated by just three giants of asset management, who between them control almost three quarters of all passively-managed investment in stocks.”
- “As demand for index products grows, a greater proportion of the world’s listed companies will fall under the control of the three largest investment management groups. Already, these firms collectively own close to 20% of US large-cap companies.”
- “Passive dominance won’t happen overnight. Yet, left unchecked, the growth of index-trackers has the potential to erode the market-based economy, one industry at a time.”
- “There is also a geopolitical dimension. If the passive giants end up owning large swaths of the capital market, they will also have a big say on the composition of stock and bond indices. Effectively able to decide which country or company should be included or excluded from those benchmarks, they would wield enormous influence over international capital flows. Note BlackRock’s recent call for China to be included in MSCI’s global equity indices.”
- “Some might see that as an excessive concentration of power.”
- “None of this relieves the pressure on active managers to perform and offer better value to their clients. Nor does it deny the utility of passive investment. Index products offer benefits to investors. The problem is that if the majority of us embrace them, index-trackers threaten to sabotage the entire economic system. Much like antibiotics, if passive funds are overused, they will create more problems than they solve.”
WSJ – Going Out for Lunch Is a Dying Tradition – Julie Jargon 5/30
Markets / Economy
FT – Debt pile-up in US car market sparks subprime fear – Ben McLannahan 5/29
WSJ – Smoky Diesel Cloud Hangs Over Auto Industry Profits – Stephen Wilmot 5/30
- The knock-on effect: diesel engine cars now have a bad taint to them making inventories of auto manufacturers with large diesel production less valuable and hurting the resale value of existing diesel vehicles.
Real Estate
WSJ – Dead Mall Space Could Spur Warehouse, E-Commerce Deals – Esther Fung 5/30
- “Excess parking facilities and underused retail space could be redeveloped into small-scale last-mile delivery or pickup facilities, according to Fitch Ratings.”
Energy
WSJ – OPEC Oil Deal Sinks Tanker Industry – Spencer Jakab 5/30
FT – Oil prices slip further as traders seek bigger production cuts – Anjli Raval and Neil Hume 5/30
- “Oil prices took a further hit on Tuesday, reflecting disappointment among traders that Opec and its allies agreed to only extend, but not deepen, production cuts to drain the market of excess inventories.”
Australia
- “…Australian asset manager Altair Asset Management made the extraordinary decision to liquidate its Australian shares funds and return ‘hundreds of millions’ of dollars to its clients according to the Sydney Morning Herald, citing an impending property market ‘calamity’ and the ‘overvalued and dangerous time in this cycle.'”
South America
FT – Venezuelan armed forces stay loyal to President Maduro – Gideon Long 5/29
- Bottom line as Daniel Lansberg-Rodriguez, Latin American specialist at Northwestern University, puts it “[The government] has gone to great lengths to keep the military on its side through cash bonuses, wage hikes and the doling out of lucrative governorships and ministries,.”
- “Having profited from ‘smuggling, arbitrage and narco-trafficking schemes,’ many within the military worry that if the president falls they will end up in court and then jail, he said.”
Other Links
WSJ – Daily Shot: FiveThirtyEight – Sleep Patterns by U.S. State 5/30
WSJ – Daily Shot: World Economic Forum – World’s Most Crowded Cities 5/30
Perspective
- “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
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
Worthy Insights / Opinion Pieces / Advice
FT – When it comes to investing, human stupidity beats AI – Miles Johnson 4/10
- “Since their inception, financial markets have been driven by greed and fear. No matter how advanced technology becomes, human nature isn’t changing. Or as billionaire Carl Icahn has put it: ‘Some people get rich studying artificial intelligence. Me, I make money studying natural stupidity.'”
Markets / Economy
WSJ – Daily Shot: BMI / Federal Reserve – US Credit Growth Drying Up 4/11
WSJ – Slowdown in Borrowing Defies Easy Explanation – Aaron Back 4/11
Real Estate
WSJ – Daily Shot: John Burns RE Consulting – US Single-Family Residential Permit Projections 4/11
WSJ – Daily Shot: John Burns RE Consulting – Growth Rate of US Resident Population Aged 20-64 4/11
WSJ – Daily Shot: John Burns RE Consulting – Multifamily Construction Activity 4/11
Asia – excluding China and Japan
Australia
WSJ – Daily Shot: Moody’s – Australian House Price Increases 4/11
China
- “China Huishan Dairy has defaulted on a $200m loan and had assets frozen in China in relation to another $79m debt, in a sign of the troubled dairy operator’s worsening problems.”
- “Paul Gillis, an accounting expert at Peking University, said the company’s sudden share collapse ‘raises the question of why short-sellers are able to find these things, but auditors never seem to find them.'”
FT – Hong Kong’s Li & Fung faces dilemma of ‘innovate or die’ – Ben Bland 4/10
Other Links
Economist – United bumps more passengers than any other large American airline – Data Team 4/11
Bloomberg – DeVos Undoes Obama Student Loan Protections – Shahien Nasiripour 4/11