Tag: Banking

May 29, 2018

If you were only to read one thing…

WSJ – The Tragedy of Venezuela – Anatoly Kurmanaev 5/24

  • “Last weekend, Venezuela’s President Nicolás Maduro dragged his Socialist government into a third decade in power by winning elections that were boycotted by the opposition, ignored by most of his countrymen and rejected by the international community. As sluggish voting drew to a close, a smiling and confident Mr. Maduro posted a video of himself waving not to throngs of adoring supporters but to a largely empty public square.”
  • By the end of 2018, it will have shrunk by an estimated 35% since 2013, the steepest contraction in the country’s 200-year history and the deepest recession anywhere in the world in decades. From 2014 to 2017, the poverty rate rose from 48% to 87%, according to a survey by the country’s top universities. Some nine out of 10 Venezuelans don’t earn enough to meet basic needs. Children die from malnutrition and medicine shortages. An estimated three million Venezuelans, 10% of the population, have left the country in the two decades of Socialist rule, almost half of them in the past two years, according to Tomás Páez, a researcher at the Central University of Venezuela.”
  • “If Mr. Maduro didn’t know when to stop the music, the idea for the endless party came from his predecessor, Hugo Chávez, who died just a month before I arrived in 2013. The strongman charmed his countrymen with a silver tongue, his love of dancing and singing and his disdain for the hated austerity packages imposed by previous Venezuelan presidents. As oil prices shot up in his last decade, Mr. Chavez not only failed to save any of the windfall but buried the country in debt.”
  • “Along the way, he imposed capital controls to try to stop money from fleeing the country. The arbitrary exchange rate system suffocated private enterprise and investment, but the poor got subsidized food and free housing. The middle class got up to $8,000 of almost-free credit card allowances a year for travel and shopping. And the rich and politically connected siphoned off up to $30 billion a year of heavily subsidized dollars through shell companies, according to the planning minister at the time.”
  • “The currency and price controls implemented by Mr. Chávez broke the basic link between supply and demand, creating surreal economic distortions. A business-class Air France return ticket from Caracas to my hometown in Siberia would cost me $400, yet a 15-year-old Suzuki jalopy with no air conditioning and 150,000 miles set me back $4,600.”
  • “Caracas in 2013 reminded me of a tropical version of the Soviet periphery. Basic goods like flour and aspirin had fixed prices and were so cheap that companies had no incentive to make them. When you did find them, it made sense to grab as much as you could carry. Who knew when you would find them again? Like Russia in the 1980s, people dealt with shortages by resorting to the black market, hoarding goods and trading perks of their jobs, like bureaucratic stamps of approval or access to car batteries, for other favors or products.”
  • “But Venezuela’s collapse has been far worse than the chaos that I experienced in the post-Soviet meltdown. As a young person, I was still able to get a good education in a public school with subsidized meals and decent free hospital treatment. By contrast, as the recession took hold in Venezuela, the so-called Socialist government made no attempt to shield health care and education, the two supposed pillars of its program. This wasn’t Socialism. It was kleptocracy—the rule of thieves.”
  • “In Venezuela, I saw children abandon schools that had stopped serving meals and teachers trade their lesson books for pickaxes to work in dangerous mines. I saw pictures of horse carcasses on the grounds of the top university’s veterinary school—killed and eaten because of the lack of food.”
  • “Hyperinflation, set to reach 14,000% this year, has transformed the most basic transactions into Kafkaesque trials. Cash is extremely scarce, card payment networks are overloaded, cell phone coverage is worse than in Syria, and online banking systems constantly crash because of underinvestment. Paying for a cup of coffee can take an hour.”
  • “The crisis has even made it harder for the ruling elite to enjoy its privileged status. Despite access to official dollars and the protection of security details, top apparatchiks now avoid the best restaurants, the plushest resorts and business-class lounges, where they fear encountering the hatred of their compatriots. Sanctions and fears of corruption probes have barred many of them from trips to the U.S. and much of Europe.”
  • “After 2016, I no longer had to travel to report on the toll of the economic crisis. It was visible all around me: in the sagging skin of neighbors, the dimming eyes of janitors and security guards, the children’s scuffles for mangos from a nearby tree. It is profoundly depressing to watch people you know grow thinner and more dejected day by day, year after year. When I look back at my five years in Venezuela, it’s not the time I spent covering riots, violent street protests or armed gangs that stirs the most feeling. It’s the slow decay of the people I encountered every day.”
  • “For most ordinary Venezuelans I know, Mr. Maduro’s foreordained victory last weekend snuffed out the last glimmer of hope that their lives can improve through democratic and peaceful means. What’s left is exile or further misery.”

Perspective

WSJ – Daily Shot: CNN – Global School Shootings Since 2009 5/25

Slate – Eighties Babies Are Officially the Brokest Generation, Federal Reserve Study Concludes – Jordan Weissmann 5/23

Worthy Insights / Opinion Pieces / Advice

A Teachable Moment – When Fees Go Up in Seconds, It’s Time to Go – Dina Isola 5/25

FT – New York property jitters herald declines elsewhere – Gillian Tett 5/24

  • “Clouds are hovering over New York’s housing market. A couple of years ago, property prices were spiraling ever higher — much like the new luxury skyscrapers now springing up in midtown Manhattan.”
  • “But estate agents say that sales volumes in the first quarter of 2018 were at their lowest level for six years. Meanwhile the median price per square foot was 18% lower than a year earlier, according to some reports.”
  • For those of you not living in Manhattan and that don’t own property there, you think, so what? The thing is … “last month the IMF published its first comprehensive analysis of global property and this suggests that real estate is becoming prone to synchronization too. Two decades ago, only 10% of property price movements could be blamed on global — not local — factors. Now it is 30%.”
  • “…What is striking is that this real estate synchronization is affecting urban centers in both emerging and advanced economies. Or as the report notes: ‘House prices in major cities outside the United States — Beijing, Dublin, Hong Kong SAR, London, Seoul, Shanghai, Singapore, Tokyo, Toronto and Vancouver — are positively associated with US house price dispersions’.”
  • “This might seem unsurprising. After all, the global elite hop across borders at dizzying speed. So does financial capital, and sentiment-shaping news. Meanwhile, the market capitalization of the real estate investment trust sector has tripled in the past 15 years, and large asset managers allocate on average of 11% of their portfolios to property.”
  • “This has made the housing market more ‘financialized’, since some investors are treating housing more like a tradeable asset, chasing yields around the world. No wonder that a decade of ultra-loose monetary policy in the west has lifted so many geographically dispersed real estate boats.”
  • “…the key point is this: if (or when) global financial conditions eventually become less benign, there will probably be downward movement in housing markets too, with some unexpected spillover effects.”
  • “Indeed, the most intriguing point in the IMF report is that ‘heightened synchronicity of house prices can signal a downside tail risk to real economic activity, especially when taking place in a buoyant credit environment’.”
  • “In plain English, this means that a correlated boom in global real estate markets can signal trouble ahead. We should keep a close eye on those estate agents’ reports in New York — as well as London or Hong Kong. The Big Apple’s jitters might yet be a canary in the coal-mine.”

FT View – A wise autocrat knows what he does not control 5/23

  • “Turkey’s president risks losing his fight with the financial markets.”

The Irrelevant Investor – Never Begin With the End in Mind – Michael Batnick 5/25

NYT – Elon Musk, the Donald of Silicon Valley – Bret Stephens 5/25

WSJ – Banks Won Big in Washington. What It Means for Investors – Jason Zweig 5/25

Real Estate

WSJ – Daily Shot: US Existing Homes Sales 5/24

WSJ – Daily Shot: NAR US Existing Homes Months Supply 5/25

WSJ – Daily Shot: Change in US Single-Family Homes Sales 5/25

WSJ – Daily Shot: Bloomberg – Zillow – Rise in Home Sales – Select markets 5/25

Energy

WSJ – Daily Shot: eia – US Average regular gasoline price 5/25

Shipping

FT – Maersk raises shipping rates as oil price spike bites – Joe Leahy and Richard Milne 5/24

  • “The world’s biggest container shipping group Maersk Line told customers it is raising prices in response to increased marine fuel costs, showing how the surge in oil prices to their highest levels in four years is rippling through the global supply chain.” 
  • “Bunker prices, as marine fuel is known, have risen more than 20% since the start of the year, and in Europe have hit $440 per metric ton, the highest since 2014. That has forced Maersk to introduce an ’emergency bunker surcharge’, the company told customers in a note.” 

Education

WSJ – Mike Meru Has $1 Million in Student Loans. How Did That Happen? – Josh Mitchell 5/25

  • “Due to escalating tuition and easy credit, the U.S. has 101 people who owe at least $1 million in federal student loans, according to the Education Department. Five years ago, 14 people owed that much.”
  • “More could join that group. While the typical student borrower owes $17,000, the number of those who owe at least $100,000 has risen to around 2.5 million, nearly 6% of the borrowing pool, Education Department data show.”
  • “For graduate-school students especially, there is little incentive for universities to help put the brakes on big borrowing. The government essentially allows grad students to borrow any amount to cover tuition and living costs, with few guardrails on how the final sum will be repaid.”
  • “More than a third of borrowers from one of the government’s main graduate school lending programs have enrolled in some form of federal loan-forgiveness plan.”
  • “Dental school is the costliest higher-education program in the U.S. Private nonprofit schools during the 2015-2016 school year charged an average of $71,820 a year, the Urban Institute found. The USC program now costs $91,000 a year, and $137,000 when living expenses are included.”
  • “Mr. Meru’s financial records—provided to The Wall Street Journal—show he borrowed $601,506 to attend USC—a debt swelled to more than $1 million by fees and interest.”

Asia – excluding China and Japan

FT – Malaysia police seized $28.6m cash in 1MDB probe raid – Ben Bland 5/25

  • “The cash confiscated last week from a luxury Kuala Lumpur apartment linked to the 1Malaysia Development Berhad investigation was worth RM114m ($28.6m), Malaysian police said on Friday.”
  • “The hoard, composed of Malaysian ringgit, US dollars and 24 other currencies, was seized alongside 284 luxury handbags and 37 other bags full of jewelry and watches from an empty apartment at the Pavilion Residences condominiums.”
  • We’re talking liquid-hard currency…
  • “Amar Singh, the head of the commercial crime unit, said it took police and 21 officers from Malaysia’s central bank three days to count the stash, which is now being held in the bank’s vaults.”

Japan

WSJ – In Booming Japan, the Phillips Curve Is Dead – Greg Ip 5/23

Advertisements

May 24, 2018

If you were only to read one thing…

FT – Era of ‘lower for longer’ oil prices is dead – Amrita Sen and Yasser Elguindi (Energy Aspects) 5/22

  • “When oil collapsed in 2014 under the weight of US shale production, it ushered in a new-found belief that prices would remain ‘lower for longer’.”
  • “The rampant new source of crude supplies was seen to be capable of meeting rising world demand almost single-handedly, obviating the need for extra Opec barrels ever again.”
  • “As such, the concept of a ‘shale price band’ emerged of roughly $40 to $55 per barrel, reflecting the range within which the majority of US shale producers could turn a profit without the risk of the industry growing so fast that it would again flood the market. And for the better part of three years, from 2015 to 2017, oil prices traded in this range.”
  • “But in 2018, this narrative has been slowly picked apart and is now in the process of disintegrating.”
  • “While there has been breathless attention paid to prompt Brent prices climbing to $80 a barrel for the first time since 2014, what has received less attention is that the entire Brent forward curve is now trading above $60, including contracts for delivery as far out as December 2024.”
  • “This development is an important psychological milestone for the oil market. The market is, in effect, saying that ‘lower for longer’ is dead.”
  • “The reality is that US shale has been unable to meet rising global oil demand, which has averaged 1.7m b/d per year since 2014 — double the level at the start of this decade — and inventories have drawn down as a consequence, eliminating the buffer that had been built up.”
  • “This inventory fall has been helped by strong demand growth and the Opec/non-Opec deal to curtail output since January 2017, which has since been superseded by rapid declines in Venezuelan and Angolan production and, more recently, non-Opec production outside of the US.”
  • “The inevitable supply deficit is very worrying, with very limited spare production capacity available globally.”
  • “Two main themes are now starting to impact investor thinking and drive the new-found interest in exposure to energy.”
  • “First, recent supply data are finally reflecting the ill effects from under-investment due to the collapse in capital expenditure since 2015. The data are now showing accelerating decline rates across important suppliers such as Brazil, Norway and Angola.”
  • “Second, the impressive strength in demand has been overshadowed in the past two years by the narrative dominated by electric cars.”
  • “But slowly this has given way to a recognition that while electric cars will undoubtedly alter the trajectory for global oil demand in the long term, this trend will not reach critical mass in the medium term (the next five years) to sufficiently make up for the expected fall in oil supplies due to the lack of investment.”
  • “So, even though expectations are for oil demand growth to slow from current levels, consumption will still be robust enough that — barring a major recession — the market will need new supplies to meet that growth.”
  • “The physical oil market is only going to face greater strain ahead of the marine fuel specification change in 2020, which is set to boost demand for products such as diesel and ultra-low sulphur fuel oil by 2m to 3m b/d.”
  • “As a result, we believe that oil prices may spike to above $100 per barrel, a price forecast we have held for the latter half of 2019 for three years now.”
  • “The shale price band has been decisively broken and 2018 will be a watershed year: the market will realize that US shale alone cannot meet the world’s incremental demand growth and future prices must rise to re-incentivize long-cycle investments (or curtail demand).”
  • “Nothing ever moves in a straight line, but the broader oil market is perhaps not prepared for what will happen to oil prices over the next couple of years.”

Perspective

Economist – Weather and violence displace millions inside borders every year – The Data Team 5/22

Worthy Insights / Opinion Pieces / Advice

Boston Globe – Gas and mortgages are getting expensive again. Welcome to a normal economy – Evan Horowitz 5/22

CNBC – Silicon Valley tech bubble is larger than it was in 2000, and the end is coming – Keith Wright 5/22

  • “The age of the unicorn likely peaked a few years ago. In 2014 there were 42 new unicorns in the United States; in 2015 there were 43. The unicorn market hasn’t reached that number again. In 2017, 33 new U.S. companies achieved unicorn status from a total of 53 globally. This year there have been 11 new unicorns, according to PitchBook data as of May 15, but these numbers tend to move around, and I believe the 279 unicorns recorded globally in late February by TechCrunch was the peak, where the start-up bubble was stretched to its limit.”
  • “A recent study by the National Bureau of Economic Research concludes that, on average, unicorns are roughly 50% overvalued. The research, conducted by Will Gornall at the University of British Columbia and Ilya Strebulaev of Stanford, examined 135 unicorns. Of those 135, the researchers estimate that nearly half, or 65, should be more fairly valued at less than $1 billion.”
  • “Don’t let the few recent successes in the 2017 IPO market fool you. After two years of stagnation in terms of the number of IPOs being filed in the United States — 275 IPOs (2014), 170 IPOs (2015) and 105 IPOs (2016) — deal counts have dropped to their lowest figure since 2012.”
  • “Seventy-six percent of the companies that went public last year were unprofitable on a per-share basis in the year leading up to their initial offerings, according to data compiled by Jay Ritter, a professor at the University of Florida’s Warrington College of Business, and recently featured in The New York Times. This is the largest number since the peak of the dot-com boom in 2000, when 81% of newly public companies were unprofitable.”
  • “The current volatility and correction evolving in the private market will be amplified for companies that have yet to make money and are burning cash faster than they’re bringing it in. Growth at all costs will not weather an economic storm.”
  • “Since the Snap IPO in March 2017 at $17 a share, when its shares surged 44% during its first day of trading, they have now declined to $11. Dropbox also went public. It had a first-day pop of 36%; however, with only 200,000 paying customers compared to its 500 million users, I would be hesitant to rush in to buy, even as it comes off that year-to-date high considerably. Another highly valued start-up, Blue Apron, went public at $10 a share in June and is now trading at $3. Remember Fitbit was a $45 stock in 2015 — it’s currently trading at just over $5.”

Economist – Markets may be underpricing climate-related risk 5/23

FT – Tanking currencies are bad news all round – Jonathan Wheatley 5/22

  • “Currency wars give no edge to exporters but do cause economic harm.”

Fortune – Retail Reckoning: How Private Equity Is Boosting Some Brands and Crushing Others – Phil Wahba 4/24

WSJ – Daily Shot: Bianco Research – Google Search Trends – Consumer Spending 5/23

WSJ – Daily Shot: Bianco Research – Google Search Trends – Consumer Difficulties 5/23

Markets / Economy

CNBC – Inflation is coming to the US economy on an 18-wheel flatbed – Jeff Cox 5/22

  • “Multiple signs of inflation in freight-related industries are at or near historical highs, in what could be an early sign that price pressures are building and ready to reverberate around the economy.”
  • “Freight marketplace DAT keeps track of supply and demand in the freight industry through a bulletin board that matches companies with loads to be delivered to the vehicles that will take the goods to the marketplace. The measures are in the spot market, where vendors that don’t contract their deliveries find drivers for their products.”
  • “Recent readings show demand for vehicles skyrocketing, a sign that generally points to inflationary pressures building up in the supply chain.”
  • “Loads on the spot market in general are up 100% from the same period a year ago. Another measure, the flatbed load-to-truck comparison, which tracks the amount of vendors looking for flatbeds and is generally the highest of all truck types, is up 142%.”
  • “The numbers by themselves, though, don’t indicate that inflation is ready to strike soon. Indeed, the most recent readings, such as the consumer and producer price indexes, show inflation pressures rising though relatively benign.”
  • “But they do jibe with some other indicators showing inflation is rising beneath the surface.”

FT – US has more than 5,600 banks. Consolidation is coming – Ben McLannahan 5/22

  • “The US’s banks have largely sat out the mergers and acquisitions wave of recent years. While deal records have fallen in almost every other sector, big banks have done almost nothing, shrinking rather than expanding. And merger activity among small and mid-sized banks — some 5,607 of them, at last count — has been subdued.”
  • “But when Fifth Third Bancorp of Cincinnati revealed its $4.7bn swoop for Chicago’s MB Financial on Monday morning, shares in other Chicago-area banks began to move, too. Wintrust, a similar-sized bank based in Rosemont, Illinois, ended the day up almost 4%, while First Midwest of Itasca closed up 3%.”
  • “The implications were obvious: after years of thin activity in bank M&A, this deal could mark a turn.” 
  • “The conditions for dealmaking look better than at any time since the financial crisis. Higher interest rates and lower taxes have pumped up bank profits, giving management teams stronger platforms from which to contemplate doing something radical.”

WSJ – Rising Dollar Sparks Tumult in Emerging Markets – Ira Iosebashvili, Josh Zumbrun, and Julie Wernau 5/21

  • “U.S. currency’s rally puts spotlight on weaknesses in a broad range of emerging-market assets.”

Real Estate

WSJ – Who Needs a Down Payment? Trade In Your Old Home Instead – Laura Kusisto 5/22

  • “Opendoor offers to take the hassle out of selling an old home to buy a new one.”

WSJ – Daily Shot: John Burns RE – Home Builder Land Acquisitions 5/23

Energy

FT – The geopolitics of electric cars will be messy – Henry Sanderson 5/22

  • “Oil has had a leading role in geopolitics over the past 100 years, sucking western powers into an often disastrous dependence on the Middle East.”
  • “While black gold, as oil is sometimes known, is not always the overt cause of conflict, it is linked to between one quarter and a half of all interstate conflicts globally between 1973 and 2012, according to a 2013 study by Jeff Colgan of Brown University.”
  • “But it would be a mistake to assume that geopolitical tensions will miraculously ease in a future in which renewable energy sources dominate. Building wind turbines and creating lithium-ion batteries requires metals and raw materials from those countries which are blessed, or potentially cursed, with them.”
  • “And for some of these commodities, their high concentration in particular parts of the world sharpens the risks.”
  • “A clean energy economy will require a staggering volume of metals to be prized from the ground.”
  • “For example, Olivier Vidal of the University Grenoble Alpes estimates that to build the infrastructure for clean energy the amount of copper needed amounts to almost half the total mined since 1900.”
  • “There is also the real risk that the age of the electric car will generate corporate monopolies, echoing those of Standard Oil whose founder John D Rockefeller cornered the oil market more than a century ago as the combustion engine took off.”
  • “Glencore, the Switzerland-based and London-listed miner, is expanding its production of cobalt which is set to give it a 40% share of global supply by 2020.”
  • “The production of lithium, a key ingredient for batteries in electric cars as well as smartphones, is controlled by just five companies.”
  • “However, rather than tensions with the Middle East, the advent of the electric car will usher in greater friction with China. Beijing’s ambitions in clean energy are enormous.”
  • “As part of the ‘Made in China 2025’ plan to advance high-end manufacturing, the government wants to establish a grip on the production of electric cars and clean energy technology.”
  • “The rest of the year will provide further signs of the capital and scale that China is bringing to this competition.”
  • “No one is giving China a free run at the metals that have emerged as central to electric cars.”
  • “Trade tensions with US President Donald Trump are already brewing. This month his administration released a list of 35 minerals, including lithium and cobalt, that are ‘considered critical to the economic and national security of the United States.’”
  • “Chile, which has the world’s largest lithium reserves, is looking to build battery components, while South Africa, a producer of vanadium, wants to produce electrolytes for vanadium batteries, which are used to store energy for the electric grid.”
  • “Europe, too, is beginning to build its own giant battery factories to supply Germany’s car companies and the UK’s innovation agency has backed a study that uses satellites to look for lithium in Cornwall.”
  • “The geopolitics of the era of the electric car are in their infancy. While it is unlikely to lead to military conflict, the tensions, especially with China, over who will control the resources and technologies that will underpin electric cars will be heightened.”
  • “Over the long term, the winners are likely to be those countries and companies that can develop battery technology that relies on materials that are abundant rather than scarce. It might even help make the geopolitics a little less fraught.”

Finance

FT Alphaville – ‘Some of the worst covenants that we’ve ever seen’ – Alexandra Scaggs 5/21

Cryptocurrency / ICOs

WSJ – Buyer Beware: Hundreds of Bitcoin Wannabes Show Hallmarks of Fraud – Shane Shifflett and Coulter Jones 5/17

Environment / Science

Axios – Next climate challenge: A/C demand expected to triple – Ben Geman 5/15

Construction

WSJ – Daily Shot: CME Lumber (Jul) Futures 5/22

Asia – excluding China and Japan

FT – Malaysia says it has been ‘bailing out’ 1MDB – Alice Woodhouse and Harry Jacques 5/22

  • “Malaysia has paid almost RM7bn ($1.8bn) to service debt owed by 1MDB, the south-east Asian nation’s finance ministry said on Tuesday, as investigators ratcheted up their probe into the state investment fund from which $4.5bn is alleged to have gone missing.”
  • “Two weeks after voters ousted the government of Najib Razak, the finance ministry said it had been ‘bailing out’ the 1Malaysia Development Berhad fund since April 2017, adding that another RM144m interest payment was due on May 30.”
  • “The revelation ‘confirms the public suspicion that 1MDB had essentially deceived Malaysians by claiming that [the payments] have been paid via a ‘successful rationalization exercise’,’ the ministry said in a statement. ‘All the while it has been the MoF [ministry of finance] who has bailed out 1MDB.'”
  • “Earlier on Tuesday, Malaysia’s new anti-corruption chief said he had been harassed and received a death threat after he pursued a 2015 investigation into 1MDB.”

India

FT – Oil price rise puts heat on Narendra Modi’s government – Amy Kazmin 5/22

  • “In 2016 — as global crude oil prices fell to about $40 per barrel — India, which imports nearly 80% of its petroleum, levied new excise duties on petrol and diesel to stabilize prices and prevent a surge in demand.” 
  • “Since then, New Delhi has come to depend heavily on those revenues to shore up its fragile public finances, especially as receipts from the goods and services tax introduced last year have failed to stabilize at expected levels.” 
  • “But after global crude oil prices hit a four-year high of more than $80 per barrel last week, India’s fuel pump prices — for decades subsidized by the government and held artificially low — have jumped to among the highest in south Asia.”
  • “Industry groups are pressing New Delhi to pare back excise duties on fuel, warning that the high prices will undermine an economy only now recovering from the successive disruption of a dramatic cash ban and the introduction of the goods and services tax.”
  • “But any meaningful rollback to ease pressure on consumers will raise doubts over the ability of Mr Modi’s administration to meet its target of cutting the fiscal deficit to just 3.3% of gross domestic product.”
  • “’India’s reliance on oil revenue has now surpassed the Malaysian government’s reliance on oil revenues — and Malaysia is an oil exporter,’ said Vikas Halan, senior vice-president at Moody’s Investors Service, the rating agency. ‘The government can always roll back excise duty — there is no one stopping them — but the issue is, how will they compensate for the loss of revenue?’”
  • “Last year, excise duties on petroleum products, which are about a quarter of the retail price of petrol and diesel, accounted for 17% of New Delhi’s total revenue collection. For every R1 that the government pares back these excise duties, it will lose an estimated $1.8bn in revenues, or about 0.1% of annual GDP.” 
  • “Adding to the overall pressure is the recent weakening of the Indian rupee, which has fallen 6% this year to a 16-month low of Rs68.1 per dollar. Further depreciation will mean even higher local fuel prices. Bond markets are also jittery, with yields rising.”

South America

WSJ – Daily Shot: Black Market Exchange Rate – USD / Venezuelan Bolivar 5/23

WSJ – After Venezuela Strongman’s Victory, Isolated Nation Faces Growing Chaos – Kejal Vyas, Ryan Dube, and Juan Forero 5/21

Other Interesting Links

CNBC – The richest person in every state, according to Forbes – Emmie Martin 5/22

August 24, 2017

Markets / Economy

WSJ – Mutual Funds Mark Down Uber Investments by Up to 15% – Rolfe Winkler and Greg Bensinger 8/22

  • “Vanguard Group, Principal and Hartford Funds all marked down their shares by 15% to $41.46 a share for the quarter ended June 30, according to the fund companies’ latest disclosure documents. T. Rowe Price Group Inc. cut the estimated price of its Uber shares by about 12% to $42.70 for the same period.”
  • “Uber’s shares don’t trade publicly, so the mutual-fund companies that hold them must estimate the shares’ worth each quarter. Seven mutual-fund companies had mostly maintained a $48.77 share price since the fourth quarter of 2015, when Uber first sold its shares to investors at that price.”
  • “Fidelity Investments held its estimate of $48.77 as of June 30. The one outlier is BlackRock Inc., which wrote up the shares slightly each of the past two quarters, settling at $53.88 as of June 30.”
  • “At least seven mutual-fund companies own shares in Uber, several of them first buying in during a 2014 funding around at $15.51 a share. The price has roughly tripled since then through a series of funding rounds, but Uber hasn’t raised new capital since last year at the $48.77 price.”

Finance

WSJ – Think Rates Are Going Up? Banks Don’t – Rachel Louise Ensign 8/22

  • “After years of waiting for interest rates to rise, some banks are lending as if that day will never come, loading up on a record amount of loans and securities that carry low rates for long periods.”
  • “The percentage of bank assets that won’t mature or change rates for more than five years reached a new high in the second quarter, according to Federal Deposit Insurance Corp data released Tuesday. That means banks are allowing more borrowers to lock in low rates for long periods, a potential risk should rates move sharply higher.”
  • “Across all banks, the percentage of total assets that are at a fixed rate for more than five years was 27.5% in the second quarter of 2017, its highest since the FDIC started tracking it in 1984. The metric reached 33.7% in the second quarter at banks with $1 billion to $10 billion in assets.”
  • “Commercial real-estate loans made up 31.5% of assets at those midsize and smaller banks in the quarter, up from 25.7% in the second quarter of 2012. The figure is far lower at bigger banks, at 6.4%, and has remained steady in recent years.”
  • “The growth rate for commercial real-estate loans, now around 9%, has helped banks compensate for a slowdown in general business lending, much of which is floating rate, meaning the interest rates on the loans rise and fall with market rates.”

Environment / Science

NYT – Alaska’s Permafrost is Thawing – Henry Fountain 8/23

  • “Once this ancient organic material thaws, microbes convert some of it to carbon dioxide and methane, which can flow into the atmosphere and cause even more warming. Scientists have estimated that the process of permafrost thawing could contribute as much as 1.7 degrees Fahrenheit to global warming over the next several centuries, independent of what society does to reduce emissions from burning fossil fuels and other activities.”

August 23, 2017

Perspective

Visual Capitalist – Interactive: tableau – Visualizing Median Income For All 3,000+ U.S. Counties – Jeff Desjardins 8/22

Worthy Insights / Opinion Pieces / Advice

Bloomberg View – The Energy Revolution Will Be Optimized – Liam Denning 8/16

  • “The primary job of the 20th-century oil major or utility was to raise the capital required to build enormous energy production and distribution networks to feed industrialization. The onus was on providing ever more supply, since growth in demand was a given.”
  • “The latter no longer holds true. Energy efficiency matters more now, especially as concerns about pollution, including carbon emissions, have intensified. The job of the 21st-century energy provider, therefore, will be less and less about sheer quantity and more about both quality and smart consumption. Think software-as-a-service rather than just getting Windows 95 installed on as many desktops as possible.”

Markets / Economy

WSJ – How Retiring Baby Boomers Hinder U.S. Wage Growth – Eric Morath 8/21

  • “Departing older employees are being replaced by younger and cheaper workers, San Francisco Fed study finds.”

Real Estate

WSJ – The Price Isn’t Right for Home Builders – Justin Lahart 8/22

  • “Shares of home builders look pricey and vulnerable to a correction as costs rise and affordability is strained.”

Finance

FT – Here is the big reason banks are safer than a decade ago – Alan Smit and Martin Arnold 8/21

  • “The build-up to the financial crisis was marked by a rapid growth in wholesale funding, where banks borrow from one another and other financial institutions, rather than raising money through deposits from retail banking customers.”
  • “When the subprime mortgage meltdown began, banks lost faith in each other and those wholesale funding markets seized up.”
  • While western banks have backed off of it, “wholesale funding now accounts for more than a third of many Chinese banks’ total liabilities — three times as much as five years ago. Some analysts fear Chinese banks may yet generate another ‘Lehman moment’.”

China

FT – Dalian Wanda drops £470m London property purchase – Don Weinland and Judith Evans 8/22

  • “Chinese property developer Dalian Wanda has walked away from a plan to buy London’s Nine Elms Square amid mounting pressure from Beijing to curtail high-profile overseas acquisitions.”
  • “The 10-acre plot is part of London’s largest residential development site, where a number of real estate companies are building 20,000 mainly luxury homes south of the river Thames.”
  • “However, the land will still be acquired by Chinese buyers after a last-minute adjustment to the deal.”
  • “Hong Kong-listed Guangzhou R&F Properties stepped in to make its second hastily arranged deal involving Wanda in a matter of weeks. In July, R&F, which is based in the southern Chinese city of Guangzhou, agreed to purchase 77 Wanda hotels on the Chinese mainland.”
  • “R&F told reporters in Hong Kong that it bought the site jointly with CC Land, another Chinese property developer that this year acquired London’s ‘Cheesegrater’ skyscraper. R&F also owns the nearby Vauxhall Square site.”
  • “Wanda still owns the One Nine Elms site in the same area, which is slated for a 200-metre-high development that includes 437 homes and 3,584 sq ft of retail space, as well as one of the first Wanda Vista hotels to be built outside of China.”

Japan

FT – Japan looks to staunch regional student exodus – Leo Lewis 8/21

  • “Japan is planning an enrolment cap for Tokyo’s private universities to reverse a tide of ambitious 18-year olds eager to abandon the provinces and study in the capital.”
  • “The plan to clip Tokyo’s academic wings is part of a broader drive to protect regional economies from implosion — a fate some consider inevitable as the country’s population ages and shrinks.”
  • “Particularly acute, say government officials, is the ‘drastic decline in the population of 18-year olds’ — a group whose ranks not only want to study in Tokyo, but are increasingly keen to remain in the capital after graduating, to work.”
  • “To reduce Tokyo’s magnetism in an uneven economy, proposed regulation will place an indefinite ban on any private university within Tokyo’s 23 wards from applying for an increase to its annual intake of new students.”
  • “The plan’s success, say officials, hinges upon regional universities — and the job markets nearby — raising their game. ‘Universities have a major role in realizing regional revitalization but not many of them are that successful in driving structural changes in regional industry,’ said a report justifying the Tokyo quota cap.”
  • “The report, which recommended the cap come into force within the current fiscal year, which ends in March 2018, warned that unless Tokyo’s dominance was offset, regional university finances would deteriorate.”
  • “Regional revitalization policies have included encouraging bank mergers and legalizing casino gambling. But despite these policies, the annual number of 20-24 year old Japanese moving into Tokyo has risen 35% since Mr Abe became prime minister.”