Tag: Brazil

April 9, 2018

Trying a new approach. Thoughts?

 

Trade War. Chinese Aviation. Japan Sex Industry. Facebook. Investment Management. Interest Rates. Solar Installations. US Treasuries. Shipping. Ireland. Britain. Former presidents Park and Lula.

Continue reading “April 9, 2018”

November 27, 2017

Perspective

NYT – The Typical American Lives Only 18 Miles From Mom – Quoctrung Bui and Claire Cain Miller 12/23/15

Worthy Insights / Opinion Pieces / Advice

NYT – Saudi Arabia’s Arab Spring, at Last – Thomas Friedman 11/23

NYT – Where Brexit Hurts: The Nurses and Doctors Leaving London – Katrin Bennhold 11/21

Vanity Fair – The End of the Social Era Can’t Come Soon Enough – Nick Bilton 11/23

Real Estate

Investment News – Nontraded REITs to post worst sales since 2002 – Bruce Kelly 11/21

  • “Sales of nontraded real estate investment trusts are headed for their worst year since 2002, with the industry on track to raise just $4.4 billion in equity in 2017, about $100,000 less than a year earlier, according to data from Robert A. Stanger & Co.”
  • “Making matters worse for the industry is that one newcomer to selling nontraded REITs, The Blackstone Group, has the highest sales for the year to date through September. Blackstone had almost $1.4 billion in sales with its new REIT, the Blackstone Real Estate Income Trust, over the first nine months of the year, according to Stanger.”
  • “That means traditional nontraded REIT managers – including Griffin Capital Co., Carter/Validus Advisors, Cole Capital and others – will likely raise about $3 billion this year, about one third less than the 2016 total. And independent broker-dealers are struggling without the lucrative commissions formerly generated by product sales.”
  • “In 2002, $3.8 billion worth of nontraded REITs were sold. Nontraded REIT sales were $11.5 billion in 2007, according to Stanger, just as the real estate crash was beginning. Sales of nontraded REITs hit their peak in 2013, when independent broker-dealers sold $19.6 billion of the products.”
  • In addition to an accounting scandal at industry behemoth, American Realty Capital (ARC), new securities rules have hurt sales.
  • “New securities industry rules and regulations, including the Department of Labor’s fiduciary rule, have hurt sales of high commission products like nontraded REITs. The fiduciary rule has flattened the levels of commissions that brokers charge clients for products such as mutual funds.”
  • “The Financial Industry Regulatory Authority also recently put into place a new rule, known as 15-02, that makes pricing of illiquid securities like nontraded REITs more transparent to investors. In the past, client account statements showed illiquid securities like REITs at the value they were bought by the client and did not subtract commissions, which were high.”
  • “With the DOL fiduciary rule flattening commissions, many REIT managers began selling T shares, which cut the upfront load by more than half. After initially paying a 3% commission, the broker is then paid up to 7% over several years. An annual commission of 80 basis points is paid from the return generated by the REIT manager.”

Finance

Investment News – Nontraded BDC (Business Development Companies) sales in worst year since 2010 – Bruce Kelly 11/22

  • “The illiquid product’s three-year decline is partially due to new regulations and poor performance.”

WSJ – A Decade After the Crisis, King Dollar Is the World’s Tyrant – Jon Sindreu and Mike Bird 11/26

  • “Many economists have long predicted an end to the dollar reign that was established after World War II, especially after President Richard Nixon unpegged the greenback from gold in 1971. The creation of the euro in 1999 and the breakneck growth of the Chinese economy led many analysts to say the dollar would need to share the limelight.”
  • “But the euro became politically unpopular during the European debt crisis, and Chinese capital controls to peg the yuan are anathema to global investors. Meanwhile, the share of official reserves held in dollars recently stopped its multiyear decline, and in the second quarter of 2017, foreign-country dollar-denominated debt rose to an all-time high of $8.6 trillion, according to the BIS.
  • “’The dollar’s downward trend of the last 40 years is over,’ said Paresh Upadhyaya, fund manager at Amundi Pioneer, Europe’s largest asset manager.”
  • “A one-currency dominance challenges economic models that see global financial markets as a flat surface where, on average, investors shouldn’t be better or worse off depending on which currency they trade.”
  • “Reality tends to show something else.”

Fortune – Nearly 4 Million Bitcoins Lost Forever, New Study Says – Jeff John Roberts and Nicolas Rapp 11/25

NYT – Warning Signs About Another Giant Bitcoin Exchange – Nathaniel Popper 11/21

Shipping

Visual Capitalist: MarineTraffic – Visualizing Every Ship at Sea in Real-Time – Jeff Desjardins 11/23

Britain

FT – The UK’s hidden one-child-per-family university policy – Martin Lewis 11/23

  • “Supporting two children studying at university could cost much more than you think.”

China

The Guardian – Chinese bike share graveyard a monument to industry’s ‘arrogance’ – Benjamin Haas 11/24

South America

FT – Surge in cargo theft hits the bottom line in Rio de Janeiro – Andres Schipani and Joe Leahy 11/21

  • “The thefts — which occur on average more than once an hour and are often staged by scores of criminals carrying assault rifles — have reportedly forced the national postal service to stop street deliveries in some neighborhoods of Rio, while supermarkets have raised their prices by up to 20 per cent to pay for the losses.”
  • “Recession-induced budget crises across governments in Latin America’s largest economy have led to the spike in crime, analysts say. One state — Espírito Santo — recorded 128 murders during eight days of uncontrolled street crime in February when police went on strike after budget cuts.”
  • “Cargo theft in Rio de Janeiro, whose greater metropolitan area has a population of 12m people, has increased sharply from 5,890 incidents in 2014 at the start of the economic downturn to a record 9,862 last year, says the local industry association Firjan. The state is on track to top a similar number this year, with food, beverages, electronic appliances and cigarettes among the preferred targets.”
  • According to a 2017 report by the Inter-American Development Bank, crime and the efforts to combat it cost Brazil some $120bn a year, three times the toll on Mexico, which is ravaged by drug-cartel violence.
  • Is this what happens when a society becomes too unequal? Politicians play their hand at their ability to regulate with intent to collect personal payoffs – graft becomes endemic – the people go on a corruption hunt – political infrastructure suffers – basic services decline – theft and looting become common place. I would imagine that the walls around the wealthy compounds are getting higher with more armed guards.

September 18, 2017

If you were to read only one thing…

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

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

Worthy Insights / Opinion Pieces / Advice

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

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

Markets / Economy

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

Finance

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

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

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

Australia

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

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

South America

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

September 8, 2017

Perspective

WSJ – Daily Shot: US Auto Fuel Efficiency 9/7

NYT – An Enormous, Urgent Task: Hauling Away Harvey’s Debris – John Schwartz and Alan Blinder 9/6

  • “Of all the challenges that southeast Texas faces after Hurricane Harvey, few will linger longer or more visibly than the millions of pounds of debris already crowding curbs and edging onto streets. The cleanup, needed from northeast Houston’s neighborhoods to the wealthy suburbs southwest of the city, will take months and cost billions of dollars.”
  • “At the same time, Houston officials are asking residents to separate their Harvey-related waste into five piles: appliances; electronics; construction and demolition debris; household hazardous waste; and vegetative debris. A look at these streets suggested that few people seemed to be heeding the city’s pleas.”
  • “Other cities have been through this battle with a storm’s leavings. After floodwaters inundated East Baton Rouge Parish, La., last year, crews collected about two million cubic yards of debris. Superstorm Sandy, in 2012, led to about six million cubic yards of debris in New York State — the equivalent of four Empire State Buildings, according to the Federal Emergency Management Agency. Katrina left behind 38 million cubic yards. Getting the stuff gone is a long process. It was only last month that Baton Rouge finished the debris removal process it organized in the wake of last year’s flooding there.”
  • “In Houston, where city officials say that some eight million cubic yards of debris will need to be hauled away, collection is farther along in some neighborhoods than in others.”
  • “The job of deciding how to move these mountains has been left to county and local officials, who hire debris removal companies to help them dig out. FEMA will reimburse the local governments for 90% of the cost.”

Economist – How government policy exacerbates hurricanes like Harvey 9/2

  • “The bad news is that storms and floods still account for almost three-quarters of weather-related disasters, and they are becoming more common. According to the Munich Re, a reinsurer, their number around the world has increased from about 200 in 1980 to over 600 last year. Harvey was the third ‘500-year’ storm to strike Houston since 1979.”
  • In regard to encouraging less than desirable behavior, “the National Flood Insurance Program (NFIP) has been forced to borrow because it fails to charge enough to cover its risk of losses. Underpricing encourages the building of new houses and discourages existing owners from renovating or moving out. According to the Federal Emergency Management Agency, houses that repeatedly flood account for 1% of NFIP’s properties but 25-30% of its claims.”

Worthy Insights / Opinion Pieces / Advice

Economist – Lexington: Our columnist bids farewell 9/7

  • “After five years, which included reporting trips to 46 states, this Lexington offers some parting thoughts on American politics.”

Economist – How to provide a protein-rich diet to a growing population 8/31

  • “What goes onto people’s plates matters. So does what gets fed to animals.”

Markets / Economy

WSJ – Daily Shot: Goldman Sachs – Ownership of US equity market since 1945 9/7

NYT – Milestone for BMI: More Than $1 Billion in Music Royalties – Ben Sisario 9/7

  • “The organization, whose hundreds of thousands of members include stars like Taylor Swift, Ed Sheeran and Sting, announced on Thursday that it had $1.13 billion in revenue and distributed $1.02 billion in royalties during its most recent fiscal year, which ended in June. BMI and other performing rights organizations, like its rival Ascap, collect money whenever songs are played on the radio, streamed online or piped into a restaurant.”

Real Estate

Bloomberg Quint – India Trumps Hong Kong as No. 1 for Home-Price Gains in Asia – Pooja Thakur 9/6

  • But when you look at the last 5 years…

Finance

WSJ – Daily Shot: Global High-Yield (HY) Corporate Bond Issuance 9/7

Bloomberg – Bennett Goodman Builds $95 Billion Credit Machine – Nabila Ahmed, Sridhar Natarajan, and David Carey 9/5

China

WSJ – China’s Bad Banks Show It Still Has a Big Bad Loan Problem – Anjani Trivedi 9/7

  • “There are Chinese banks and then there are China’s bad banks. To understand just how worrying the country’s bad-loan problem has become, it’s worth taking a look at the latter.”
  • “China Cinda Asset Management , the second-largest of four asset managers set up in the 1990s to clean up China’s then already large pile of souring loans, is still at it two decades on, managing and restructuring distressed assets offloaded by banks. The company’s latest results offer a lens into the rapidly deteriorating asset quality in China, that’s at odds with the relatively rosy picture of China painted for investors by its near-7% growth and corporate profits that have surged to multiyear highs.”
  • “The current pace at which Cinda is acquiring distressed assets is far outpacing the rate at which it can dispose of these assets. That has pushed down the price at which it can sell bad-loan portfolios to close to 20 cents on the dollar from 30 cents this time last year. Its income from disposing bad assets dropped 64% on the year, with returns on restructured assets falling to 8.7%in the first half from 10.6% a year ago. Losses from impairments on its assets more than doubled in the first half, driven by a more-than 10-fold increase in provisions.”
  • “These trends suggest China’s bad-loan problem is rather more severe than investors would guess from looking at the big banks’ results: The likes of ICBC and Bank of China actually reported improving nonperforming loan ratios in the first half. One reason they were able to do so is that they have been offloading bad assets to the likes of Cinda, which picks up around 60% of its distressed assets from the big banks.”

Japan

Bloomberg – Japanese Companies Cut Bonuses, Pushing Overall Wages Lower – Yuko Takeo and Yoshiaki Nohara 9/5

Russia

FT – Russia seeks to close Ukraine’s window to the west – Jeffery Mankoff and Jonathan Hillman 9/6

  • “Last month, Russia completed a railway that bypasses Ukraine. The project was entrusted to a special military unit and completed a year ahead of schedule, underscoring its importance to the Kremlin. It is the latest of several Russian-led infrastructure projects that, coupled with the devastation wrought by the conflict with Russian-backed separatists in the Donbas region, risk turning Ukraine, historically a bridge between east and west, into an island.”
  • “Isolation from emerging east-west connectivity could be one of the most enduring and most damaging consequences of the war for Ukraine, one that both Kiev and its western partners need to pay more attention to overcoming.”
  • “A UN assessment in November 2014 found that 53 bridges, 45 road sections, and 190 railway facilities had been damaged. Altogether, infrastructure losses were estimated at $440m, and while some repairs have been carried out, funding constraints and security challenges have limited reconstruction.”
  • “For both sides in the conflict, altering patterns of trade and transit is a means of shaping Ukraine’s political and economic destiny. While military forces have destroyed critical infrastructure such as bridges and railways, the governments in both Kiev and Moscow are building new connections that will re-orientate trade flows.”

South America

WSJ – Daily Shot: Brazilian CPI YoY Change 9/7

  • “Brazil’s CPI was lower than expected, which solidified the expectations for another rate cut.”

September 7, 2017

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

NYT – Brazilian Corruption Case Ensnares Ex-Presidents da Silva and Rousseff – Shasta Darlington and Ernesto Londono 9/5

  • “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.’”

September 5, 2017

Perspective

Howmuch.net – The Working Class Can (Not) Afford the American Dream – Raul 8/31

Howmuch.net – The Rising Costs of Sending Your Kids to a Private School – Raul 8/20

Howmuch.net – Status of US State Economies – Raul 8/15

Worthy Insights / Opinion Pieces / Advice

Bloomberg Businessweek – Why Private Equity Has $963 Billion in Dry Powder – Melissa Mittelman 8/31

  • “Investors give private equity managers their capital with the expectation that they’ll make it grow. But today these managers are sitting on a record $963.3 billion of dry powder, as they call money that they’ve raised but have yet to invest. The size of that pile, and the fact that it keeps rising, is making everyone antsy. A little dry powder is great if managers are holding out for better deals. But a lot can make for overly itchy trigger fingers, or can start to make investors wonder if there are cheaper ways to do nothing with cash.”

LA Times – Yes, ExxonMobil misled the public – Naomi Oreskes and Geoffrey Supran 9/1

NYT – To Understand Rising Inequality, Consider the Janitors at Two Top Companies, Then and Now – Neil Irwin 9/3

Bloomberg View – The Flaws in India’s Growth Model Are Becoming Clear – Mihir Sharma 9/3

  • “India has a way of confounding expectations. Analysts agreed that, months after Prime Minister Narendra Modi’s ill-fated decision to withdraw 86 percent of currency from circulation overnight, growth would bounce back. Economists polled by Bloomberg expected growth in the April to June quarter to be 6.5%; other estimates were even higher. So when the government’s official statisticians released the real number last week — 5.7% over the equivalent quarter of the previous year — there was general surprise, even shock.”
  • “India’s economy has been growing less and less healthy for awhile. GDP growth has now declined steadily for six straight quarters. This is a slowdown caused by factors deeper than the cash ban or any other temporary phenomenon. Something is broken in the Indian government’s policy mix.”
  • “…Government spending and low oil prices have deceptively boosted the growth numbers, masking the true state of the economy. In fact, if public spending is excluded, growth in the past quarter barely topped 4%. Export growth is terrible and industrial growth is the lowest in five years. And the government will struggle to keep investing at these levels; it started spending big unusually early in India’s financial year, which starts in April, and has already run through 93% of its budgeted fiscal deficit.”
  • “…Effective reform — and political will — is precisely what’s needed now. The government’s first task should be to clean up bad debts far quicker than it has so far — even if powerful people, including company owners, lose money in the process. Second: The government needs to stop chasing after foreign capital to replace shy domestic capital, if it means that the rupee stays high and exports struggle. And third: Officials must quickly fix those parts of the GST that are putting small companies and exporters out of business.”

Finance

Visual Capitalist – The Unparalleled Explosion in Cryptocurrencies – Jeff Desjardins 9/1

FT – University start-ups aim for the Facebook formula – Hugo Greenhalgh 8/31

  • Rather than watch their students leave University to pursue a worthwhile business start-up, Universities are getting in on the venture capital business seeking to support and nurture the talent within.

FT – Credit cards: dealing with delinquency – Lex 8/31

Tech

Fortune – Everything You Needed to Know About Overvalued Unicorns in One Chart – Anne VanderMey 8/24

Fortune – 5 Ways Businesses Are Already Using Blockchains – Jeff John Roberts – 8/21

Health / Medicine

NYT – The First Count of Fentanyl Deaths in 2016: Up 540% in Three Years – Josh Katz 9/2

  • “The first governmental account of nationwide drug deaths in 2016 shows overdose deaths growing even faster than previously thought.”
  • “Drug overdoses killed roughly 64,000 people in the United States last year, according to the first governmental account of nationwide drug deaths to cover all of 2016. It’s a staggering rise of more than 22% over the 52,404 drug deaths recorded the previous year.”
  • “Drug overdoses are expected to remain the leading cause of death for Americans under 50, as synthetic opioids — primarily fentanyl and its analogues — continue to push the death count higher. Drug deaths involving fentanyl more than doubled from 2015 to 2016, accompanied by an upturn in deaths involving cocaine and methamphetamines. Together they add up to an epidemic of drug overdoses that is killing people at a faster rate than the H.I.V. epidemic at its peak.
  • “It’s an epidemic hitting different parts of the country in different ways. People are accustomed to thinking of the opioid crisis as a rural white problem, with accounts of Appalachian despair and the plight of New England heroin addicts. But fentanyls are changing the equation: The death rate in Maryland last year outpaced that in both Kentucky and Maine.”

Canada

WSJ – The Underappreciated Risks to Canadian Banks – Aaron Back 8/31

  • “Americans looking north to Canada see a housing market that echoes their own before the financial crisis. While there are substantial differences that make Canadian lenders more resilient, investors still should be on guard.”
  • “Canadian housing prices have been rapidly rising for years, prompting local governments in frothy areas to take draconian measures such as a 15% tax on foreign buyers.”
  • “It isn’t all foreign cash—Canadian debt levels also have soared. Last year its households had debt equivalent to 176% of disposable income, according to the OECD. That compares to 112% in the U.S., down from a 2007 peak of 144%.”
  • “Canada’s banks, however, are showing no signs of stress. The country’s six biggest lenders that dominate this highly concentrated market have just reported solid quarterly earnings. Mortgage delinquency rates are remarkably low, at only around 0.2%.”
  • “It helps that most Canadian mortgages are ‘full recourse’ loans, making it much harder for borrowers to default and walk away. Around half of the mortgages written by the big six banks are also insured, directly or indirectly, by the Canadian government.”
  • “Nonetheless, the risks are substantial. Unlike in the U.S., where 30-year fixed rates are the norm, the standard Canadian mortgage rate resets every five years. In July, Canada’s central bank raised rates for the first time in seven years. Analysts expect more hikes, especially after Canada reported strong 4.5% annualized gross domestic product growth for the second quarter. That will make regular debt payments even more burdensome for Canadian households.”

China

FT – Beijing’s uneasy deals with overseas car groups under strain – Charles Clover 8/31

  • “A spate of new foreign joint ventures in China’s car industry has revived debate about an often criticized three-decade-old policy of trading market access for technology.”
  • “This week, the Renault-Nissan alliance became the latest car group to sign a joint venture to produce electric vehicles with longtime partner Dongfeng Motor Corporation, based in Wuhan, following an announcement by Ford in August that it plans to partner with little-known Zotye Auto to make EVs.” 
  • “The Renault-Nissan Dongfeng partnership is significant because it goes further than other JVs and calls for the groups to share a common technological platform. It is not clear whether other overseas car groups will follow this course because of issues over trust on the sharing of technology.”
  • “The new EV joint ventures are part of a Chinese effort to master the technology for electric vehicles — and rely on a tried and tested model of working with the global car industry since the 1980s. In a nutshell, joint ventures are the only way for foreign groups to access the world’s largest and most lucrative market. China gives the overseas companies the right to sell cars in exchange for their technology, management expertise and a share of their profits.” 
  • “’China’s central planners said ‘how can we basically force global automakers to participate and bring their very best electric vehicle technology to China?’’ says Michael Dunne, president of Dunne Automotive, a Hong Kong-based car consultancy.” 
  • “Since 1984, starting with Jeeps, foreign carmakers have been allowed to produce cars in China — but only in concert with a local partner holding at least 50 per cent of the venture. In practice, this is almost always one of six anointed state companies.”
  • “The results of the three-decade-old policy have been mixed. Rather than transforming Chinese car companies into technology giants, the joint venture companies have arguably made Chinese carmakers complacent, according to Chinese policymakers. He Guangyang, a former minister of industry, controversially described the JVs as ‘like opium’ in an interview five years ago.”
  • “Bart Demandt of carsalesbase.com says this is a legacy of the joint ventures. ‘The state-owned companies, especially those which have 50/50 joint ventures with foreign automakers, have had little incentive to invest in their domestic brands as the profits have been pouring in from producing import-brand cars for their partners.’” 
  • “However, the Chinese government is still relying on this model, and recently set its sights on the nascent battery powered car industry. Last year it included EVs as one of 10 sectors that it wants to be internationally competitive by 2025 as part of a new industrial policy ‘Made in China 2025’.” 
  • “Foreign carmakers are wary of the new requirements and have pressed on China to delay the EV quotas by at least a year. But they have few alternatives. ‘The global automakers say ‘wow, this really has teeth, because if we want to grow in this market we don’t have a choice. There is no work around’,’ says Mr Dunne.” 
  • “The second prong of the policy is to pressure foreign carmakers to ‘localize’ their electric vehicle technology, meaning in practice to share it with their joint venture partners.” 
  • “Bill Russo, head of Gao Feng Advisory in Shanghai, calls this ‘a real game-changer for the multinational carmakers’.” 
  • “’They must comply with a new set of regulations for both component localization and credits for EV sales in order to be in the game. As carmakers will be required to pay fines if they are not selling EVs, they will be required to add EV production in order to sustain their existing business in China.’” 
  • “This has created fears that their proprietary technology could be stolen. Over the past two decades, foreign makers of everything from high-speed trains to fighter planes have licensed the technology to local Chinese partners only to find a few years later that their partner is a major international competitor.” 

FT – Anbang sells stakes in Chinese megabanks amid troubles – Gabriel Wildau 8/31

  • “Anbang Insurance Group, the Chinese conglomerate that captured global attention with splashy foreign acquisitions, sold stakes worth as much as $1bn in the country’s largest banks this year, as the company struggles with a sudden drop in premiums.”
  • “In May, China’s insurance regulator banned Anbang’s life insurance unit from selling policies for three months and accused the group of ‘wreaking havoc’ on the market with aggressive pricing.” 
  • “Anbang had relied on sales of high-yield investment products to fund foreign private-equity acquisitions as well as stakes in Chinese listed companies. Chinese investors flocked to so-called ‘universal insurance’, which combined high yields with short maturities and bore little resemblance to traditional insurance.” 
  • “But an industry-wide crackdown on universal insurance has caused premiums from such products to drop more than half in the first half of the year, according to data from the China Insurance Regulatory Commission. At Anbang, such premiums fell 98%, due in part to the CIRC ban.” 
  • “The sales of shares in China’s ‘big four’ state-owned commercial banks appear to suggest that, with cash inflows from product sales drying up, Anbang sold assets to meet payouts on maturing products. Anbang said the share sales did not reflect cash flow problems.” 
  • “Last month, a Chinese credit-rating agency downgraded Anbang’s Life Insurance, saying that ‘income has fallen substantially [and] the availability of debt financing is reduced’. The agency also noted that Anbang Life posted a net loss in the first half.” 
  • “Anbang dropped off the lists of the top 10 shareholders in three of China’s big four state-owned commercial banks in the second quarter, according to the banks’ financial statements released this week. In the fourth bank, Anbang also reduced holdings but remained in the top 10.” 
  • “Anbang is also not the only insurer to sell stakes in big banks in the second quarter. Ping An Insurance, the country’s largest insurer by assets, sold down in ICBC.”

NYT – As Bike-Sharing Brings Out Bad Manners, China Asks, What’s Wrong With Us? – Javier Hernandez 9/2

  • “There are now more than 16 million shared bicycles on the road in China’s traffic-clogged cities, thanks to a fierce battle for market share among 70-plus companies backed by a total of more than $1 billion in financing. These start-ups have reshaped the urban landscape, putting bikes equipped with GPS and digital locks on almost every street corner in a way that Silicon Valley can only dream of.”
  • “But their popularity has been accompanied by a wave of misbehavior. Because the start-ups do not use fixed docking stations, riders abandon bicycles haphazardly along streets and public squares, snarling traffic and cluttering sidewalks. Thieves have taken them by the tens of thousands, for personal use or selling them for parts. Angry and mischievous vandals hang them in trees, bury them in construction sites and throw them into lakes and rivers.”
  • “Such problems have raised questions about the sustainability of China’s bike-share boom. But the debacle has also led many Chinese to look for deeper explanations and ask if bike-sharing has revealed essential flaws in the national character, prompting a far-reaching debate about social decay and the decline of decorum and morality in the country.”
  • “Some say abuse of the bicycles reflects an every-man-for-himself mentality in China that has its roots in the extreme poverty of the last century. Others are bothered by what they see as a lack of concern for strangers and public resources. The transgressions have been chronicled in the local news media with a tone of disbelief, in part because Chinese generally see themselves as a law-abiding society and crime rates are relatively low.”
  • “In many cities, the supply of bicycles far exceeds demand, bringing chaos to sidewalks, bus stops and intersections and prompting grumbles that excessive competitiveness — seen as a national trait — is spoiling a good thing. In Shanghai, where officials have struggled to maintain order, there is now one shared bike for every 16 people, according to government statistics.
  • “In some places, the authorities have confiscated tens of thousands of bicycles and imposed parking restrictions. News outlets have documented the waste with astounding images of mountains of candy-colored bicycles, each hue representing a different bike-share company.”

FT – China’s migrant workers feel pinch as Beijing pulls back on wages – Tom Hancock 9/3

Europe

Bloomberg Businessweek – Germany’s Housing Market is Red Hot, But Don’t Call It a Bubble – Stephan Kahl and Andrew Blackman 8/21

  • A different way of engaging with rising real estate values…

South America

Bloomberg Businessweek – Brazil’s Lost Decade: The Invisible Costs of an Epic Recession – David Biller and Gabriel Shinohara 8/21

  • “Once the emerging-market darling of Wall Street, Brazil’s economy went from growth of 7.5% in 2010 to shrink by virtually the same amount in the last two years. Unemployment has risen to a near-record high, GDP per capita fell to 2009 levels and the budget deficit is hovering around 10% of GDP. There is no sign the Latin American giant will recover its investment-grade status any time soon.”
  • Fortunately…

FT – Brazil ends worst recession as GDP expands for second straight quarter – Joe Leahy 9/1

  • “Brazil’s gross domestic product expanded for the second consecutive quarter in the three months ended June, officially ending the worst recession in Latin America’s largest economy.”
  • “GDP grew just 0.2% in the quarter compared to the first three months of the year and 0.3% compared with the same quarter a year earlier, the state statistics agency, IBGE, said.”

July 13, 2017

If you were to read only one thing…

WSJ – China’s Bid to Curb Its Booming Housing Market Has Only Made It Hotter – Lingling Wei and Dominique Fong 7/12

  • “The more China tries to rein in its roaring housing market, the more obsessed people get about buying.”
  • “With each new policy intended to restrict home purchases, buyers are piling in. Stressed about the prospect of being left behind, many are borrowing heavily, believing prices will continue to rise despite the restrictions and will soar if the government has to lift restrictions to spur economic growth.”
  • “Another article of faith is that the Communist Party won’t allow housing prices to collapse. ‘The government will spare no effort to make sure there are no big swings in the property market,’ says Ni Pengfei, a housing expert at the Chinese Academy of Social Sciences, a government think tank.”
  • “The desperate home buyers are exposing Beijing’s inability to control a housing market it has been relying on for economic growth. A decade ago, the real-estate sector, including construction and home furnishings, accounted for about 10% of China’s gross domestic product, according to Moody’s Investors Service . It now accounts for almost one-third, reflecting both a dearth of other investment options and the petering out of manufacturing growth.”
  • “At one time, low levels of household debt reassured government officials and economists that a property slump wouldn’t trigger a wider financial crisis. But the property-buying binge has changed that equation. Long-term household loans, mostly mortgages, now account for one-third of all new bank loans. Household debt stands at more than 42% of GDP, according to Moody’s. That ratio has grown 9 percentage points in three years and now surpasses levels in China’s emerging-market peers including Brazil, Mexico, Turkey and Russia. In the U.S., that ratio hit about 85% during the housing crisis.”
  • “Policy makers want to prevent the property bubble from getting worse, worried that any collapse could send defaults cascading through the banking system, infecting the overall economy perhaps for years to come. On the other hand, they are concerned that an investment slowdown could hamper growth. Economists already are warning that the recent property controls are starting to cause developers to scale back on new projects, potentially denting growth later this year.”
  • “Chinese government data show that prices across 70 Chinese cities were 9.7% higher in May than a year earlier, a larger year-over-year increase than the 9.3% last September, when the current round of housing controls were instituted.”
  • “At the end of last year, real estate accounted for 68.8% of China’s household assets, Moody’s says. In the U.S., it is less than 60%.”
  • “Mr. Ni, the housing expert at the Chinese Academy of Social Sciences, estimates that as much as 50% of China’s home sales today are for investment, a situation that worries the Communist Party leadership.”
  • “Nonetheless, the government has stopped short of imposing a property tax, which would discourage people from buying homes as an investment and leaving them empty by making it more expensive to own a home. Beijing has shown little political will to force a move that would raise costs for already stretched homeowners.”

Perspective

WSJ – Daily Shot: Data Is Beautiful – 5% of US physicians prescribe 60% of opioids 7/12

WSJ – Daily Shot: WEF – Time for trash to degrade in water 7/12

Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense – Markets Are Right More Often Than You Think – Ben Carlson 7/12

  • “Investors are constantly questioning whether the market is wrong. It would be far more helpful if more investors also questioned whether they are wrong about the markets.”

Real Estate

WSJ – Startups Help Landlords Turn Apartments Into Hotel Rooms – Laura Kusisto 7/11

  • “A handful of startups are betting they can help apartment-building owners convert empty units into hotel rooms, a controversial practice that could help landlords generate more revenue.”
  • “The services are sprouting up just as the red-hot U.S. apartment market is beginning to cool.”
  • “In all, there are roughly 29 million apartment units in the U.S., according to the National Multifamily Housing Council. Nearly 800,000 new units have been built since the beginning of 2014, according to CoStar Group Inc.”
  • “But the vacancy rate for apartments in downtown markets rose to 8.1% in the first quarter from 6.8% a year ago, according to CoStar. Some 45% of buildings completed in the first quarter of 2016 were more than 10% vacant after a year, compared with 38% for those built in the first quarter of 2015, suggesting properties are taking longer to lease.”
  • “The startups, which are expected to typically operate eight to 16 months in a building, see potential in helping the developers of those buildings wring revenue out of units that aren’t yet leased.”
  • “These new services aim to get around an issue that Airbnb has been confronted with: Historically, landlords have been reluctant to allow tenants to rent out units because they didn’t receive any of the revenue. Most apartment leases forbid tenants from subletting units without permission.”
  • “Airbnb has been trying to recruit owners of big apartment buildings, which represent a crucial growth opportunity for the company because the sleek modern buildings with doormen, fitness centers and contemporary finishes are likely to appeal to business travelers.”

Environment / Science

NYT – An Iceberg the Size of Delaware Just Broke Off a Major Antarctic Ice Shelf – Jugal Patel and Justin Gillis 7/12

Health / Medicine

NYT – F.D.A Panel Recommends Approval for Gene-Altering Leukemia Treatment – Denise Grady 7/12

Europe

WSJ – Daily Shot: Moody’s Investors Service – Real GDP (select European countries) 7/12

South America

NYT – Ex-President of Brazil Sentenced to Nearly 10 Years in Prison for Corruption – Ernesto Londono 7/12

  • And that just happened…
  • “The case against Mr. da Silva, who raised Brazil’s profile on the world stage as president from 2003 to 2010, stemmed from charges that he and his wife illegally received about $1.1 million in improvements and expenses for a beachfront apartment from a construction company.”
  • “Mr. da Silva can appeal the conviction, but the ruling could deliver a serious blow to his plans for a political comeback. He had been widely considered a leading contender in next year’s presidential election.”

June 9, 2017

If you were to read only one thing…

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

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

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

Perspective

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

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

Worthy Insights / Opinion Pieces / Advice

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

Markets / Economy

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

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

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

Real Estate

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

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

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

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

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

Energy

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

South America

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

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

Other Links

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

June 6, 2017

Perspective

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

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

Worthy Insights / Opinion Pieces / Advice

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

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

Real Estate

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

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

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

Finance

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

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

China

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

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

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

Puerto Rico

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

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

South America

WSJ – Daily Shot: Brazil GDP 6/1

May 24, 2017

If you were to read only one thing…

WSJ – Why Millennials Are (Partly) to Blame for the Housing Shortage – Laura Kusisto 5/22

  • “For decades during the late-20th century, suburbs were the place to build, as urban cores suffered from high crime, poor schools and stagnant or shrinking populations.”
  • “But preferences have changed among young people, many of whom want to live closer to transit, restaurants and their workplaces. The share of young, educated people living in the urban core of Washington, D.C., for example, increased 8.6 percentage points between 2000 and 2014, according to Jed Kolko, chief economist at job-search site Indeed and senior fellow at the Terner Center for Housing Innovation at the University of California, Berkeley. Portland, Ore., and Chicago each saw increases of 6.4 percentage points.”
  • “As builders have shifted focus toward trendier urban markets and away from cheaper suburbs, they have produced less housing overall than they otherwise might have. While starter-home construction has bounced back in recent months, it remains far from reversing this long-term trend.”
  • “At the same time, high land costs in central cities have pushed developers to focus on higher-end housing geared toward high earners instead of younger people just starting out.”
  • “The shift helps explain one of the most vexing aspects of the housing recovery: New homes are getting more expensive and yet there are fewer of them being built than in past cycles.”
  • “While new home sales within 5 miles of the centers of 10 of the country’s priciest and most densely populated metropolitan areas have surpassed levels from 2000, they remain more than 50% below where they were in 2000 when you go more than 10 miles out. The year 2000 is often used as a benchmark for a normal market, before the boom and bust of the mid-2000s.”
  • “The takeaway, Mr. Romem (chief economist at BuildZoom) says, is that pricey cities need to loosen land-use restrictions in core areas where there is more demand. Allowing for more high-rise condo buildings would make it economical to produce starter homes in these areas as well.”
  • “’Do you care about preserving things the way they are, so that only wealthy people can continue buying in, or do you want to [encourage more density], so that housing is more affordable for everyone?’ he asked.”

Perspective

WSJ – Brazilian Bribery Allegations Escalate Clash Between Government, Business 5/21

WSJ – Daily Shot: JBS Payments to Government Officials in Brazil 5/22

  • Seriously?

Real Estate

WSJ – Blackstone is Taking Over Mom-and-Pop Real-Estate Investing – Peter Grant 5/23

  • “Blackstone in January launched its first nontraded real-estate investment trust, a vehicle marketed to small investors as a way to participate in the commercial real-estate industry without the volatility of a traded REIT. Such vehicles have faced mounting criticism in recent years over high fees, poor disclosure and other problems.”
  • “Yet as of April, Blackstone Real Estate Income Trust Inc. had raised $755.4 million, about 41% of all the funds the entire industry raised in 2017, far more than any competitor, according to Robert A. Stanger & Co., an investment bank that specializes in nontraded REITs.”
  • “Blackstone also has become a closely watched agent for change in an industry that is trying to move away from a past that is tangled up in scandal and regulatory criticism. Like many of the new breed of nontraded REITs, Blackstone’s vehicle is structured to align the interests of investors and management better than those of the past.”
  • “The alignment between REIT managers and investors is critical today as the eight-year bull market in the commercial real-estate industry shows signs of slowing, critics say. Mistakes on reading markets could trigger losses, especially if values start to decline.”
  • “Some traditional nontraded REITs were criticized because managers wouldn’t be penalized for making bad investment decisions. That isn’t the case with the Blackstone REIT.”
  • “’If things don’t go well, Blackstone won’t make as much,’ said Phil Owens, managing director of Green Street Advisors’ consulting unit. ‘If things go really well, they make more.'”
  • “Green Street has been a critic of nontraded REITs for their high fees, weak disclosure and lack of alignment. Mr. Owens said the Blackstone structure represents ‘a big shift’.”
  • “But Mr. Owens stopped short of backing away from Green Street’s longstanding position that investors are better off buying traded REITs, which are listed on public stock exchanges, than nontraded ones. Green Street has calculated the overhead of the Blackstone REIT will be about twice as much as a ‘large, blue-chip publicly traded REIT’ if it performs as expected.”
  • “Until recently, nontraded REITs were popular because of the high dividends they paid when interest rates were near historic lows. Mostly sold by financial advisers, the vehicles raised $19.6 billion in 2013 and $15.6 billion in 2014, according to Stanger.”
  • “But the industry drew criticism for upfront fees that could run as high as 15%.”
  • “In all, the entire nontraded REIT industry has raised only $1.8 billion in 2017 as of the end of April, about the same as the first four months of 2016, the worst fundraising year since 2002, when the industry was in its early stages, according to Stanger.”
  • “Some other nontraded REIT sponsors say they aren’t worried about the new 800-pound competitor. They acknowledge the fundraising climate is tough these days. But they blame it primarily on their sales forces reacting to Finra rules and the proposed Labor Department regulations.”
  • “’It’s not Blackstone that’s impacting it,’ said Jeff Hanson, chief executive of American Healthcare Investors, which has raised more than $6 billion in equity for four nontraded REITs. Mr. Hanson predicted that Blackstone entering the business will be ‘a good thing over time’ for the industry.”

Energy

WSJ – Daily Shot: eia – OPEC Net Oil Export Revenues 5/22

FT – Oil majors seek survival in transition to low-carbon world – Andrew Ward 5/22

  • “’In our 109-year history, it is unlikely that there has ever been as much change as there is now,’ Carl-Henric Svanberg, chairman of BP, told shareholders at the UK group’s annual meeting last week, acknowledging that over the next 20 years ‘consumption of oil will slow and eventually peak’.”
  • “For all the looming risks, fossil fuels still dominate the global energy landscape. Oil, gas and coal together account for 86% of energy used for transport, heat and power worldwide. The questions for companies and investors across the sector are how fast will this change and what should they do to prepare?”
  • “Deep disruption is already being felt in the power sector. The electricity generated from renewables, excluding hydro, doubled globally between 2010 and 2015 as political efforts to tackle climate change intensified and the cost of wind and solar plummeted. Today, renewables account for an average 23% of global power output. Denmark has breezy days when all its power comes from wind and Germany hit a record 85% share from renewables one day last month.”

Finance

WSJ – Only Robots Can Tally What The Largest U.S. Pension Fund Pays In Fees – Heather Gillers and Dawn Lim 5/22

  • “If you’re using software to deal with the complexity in your portfolio maybe you should simplify your portfolio first.” – Marc Levine, Chair – Illinois State Board of Investment

Agriculture 

WSJ – Daily Shot: Wolf Street – Delinquencies of Agricultural Loans 5/22

WSJ – Daily Shot: CBOT Wheat 5/22

China

FT – MSCI to make decision on China A-share inclusion on June 20 – Pan Kwan Yuk 5/22

  • “Mark your calendars China watchers.”
  • “MSCI will on June 20 announce whether it would finally include China’s domestic A-shares in its global indices.”
  • MSCI has declined to do so on three previous occasions. Now may be the time.

FT – China’s environmental clean-up to have big impact on industry – Alan Clark 5/22

  • “…environmental sustainability is rapidly moving up the agenda for Xi Jinping, the president, as he flexes his political muscles and consolidates his leadership of China.”
  • “The country’s moves to protect the environment and avoid pollution-related social unrest represent a radical shift in Chinese policy. Just eight years ago, China viewed climate change initiatives as a western conspiracy to limit China’s rapid growth.”
  • “In the aluminum-producing, coal-consuming provinces around Beijing, Henan, Shanxi and Shandong, around 30 per cent of aluminum smelting capacity could potentially be closed between November and March every year, in an effort to reduce thick smog like that seen in the first weeks of 2017.”
  • “There is also talk of an envisaged 30% cut to alumina production in the same provinces, reducing supply of the key raw material required to produce aluminum.”
  • “While tighter regulations governing environmental protection and energy consumption were issued two years ago by the Chinese government, this year many more smelters are being threatened with the off button. The Chinese government’s new Air Pollution Prevention and Control Action Plan is aimed at offsetting the extra pollution created by the use of indoor heating during the winter heating months.”
  • “It should be acknowledged that China has been successful in cutting the use of coal, which currently provides around 70% of the country’s electricity. Coal consumption has dropped in each of the last three years and fell 4.7% last year alone.”

Other Links

Reuters – Uber inadvertently underpaid New York City drivers for over two years 5/23