Tag: Britain

August 30, 2017

Perspective

WSJ – Daily Shot: Houston is on some the nation’s least absorbent soil 8/29

Worthy Insights / Opinion Pieces / Advice

NYT – Harvey, the Storm That Humans Helped Cause – David Leonhardt 8/29

FT – A happier Japan is a concern for investors – Leo Lewis 8/28

  • “A record 74% of Japanese are satisfied with their lives, and, for the first time in two decades, a majority are content with their income, says a Cabinet Office survey.”
  • “The trouble with all this reported satisfaction, from a market point of view, is that it has happened too early.”
  • “One of the biggest fears is that a too-easily-pleased Japan will lose its hunger for serious reform and salary increases after a couple of years of superficial tinkering. That would undermine many of the big thematic investment cases that have been in place since 2013 — corporate governance reform, womenomics, unwinding of cross-shareholdings and inducing Japanese households to take more investment risk.”
  • On top of that Japanese corporates are basking in the limelight again. “The danger is that, in the glow of public satisfaction they are tending back to the investor-repellent habit of hoarding cash away from the pockets of both their shareholders and employees.”

FT – China’s tech groups are building too much power – Henny Sender 8/28

  • “There is no Silicon Valley comparison to the dominance of Alibaba and Tencent.”

Markets / Economy

FT – US home ownership fall hits young and minorities hardest – Lauren Leatherby 8/28

Energy

WSJ – Harvey’s Lessons for America’s Stretched Energy Infrastructure – Spencer Jakab 8/28

  • “For more than 40 years, the U.S. has worried about the security of its oil supply. Hurricane Harvey is another reminder that the infrastructure that processes and delivers oil is in many ways more important.”
  • “The U.S. has 141 operable oil refineries today, which is 79 fewer than 30 years ago. Those refineries have nearly 30% more capacity and are used much more heavily, about 90% on average over the past 12 months. The heaviest concentration is along the Gulf Coast where the industry has deep roots and has been allowed to expand. Harvey has temporarily knocked out about 15% of U.S. refining capacity.”

Finance

FT – Wall St’s top bankers sell own groups’ shares as Trump rally reverses – Ben McLannahan 8/27

  • “Wall Street analysts have been urging investors all year to buy stocks in the big US banks. But Wall Street itself is not listening.” 
  • “Executives and board members at the top six US banks have been consistent sellers of their own banks’ shares this year, according to an Financial Times analysis of disclosures tracked by Bloomberg.” 
  • “Insiders at the big six banks by assets — JPMorgan Chase, Bank of America, Wells Fargo, Citigroup, Goldman Sachs and Morgan Stanley — have in total sold a net 9.32m shares on the open market since the turn of the year. Even excluding Warren Buffett’s big dumping of shares in Wells in April, to avoid tripping over rules capping ownership by a non-bank, sales by insiders outnumber purchases by about 14 to one.” 
  • “That is an unusually long streak of net sales, across each of the big six. Last year, for example, insiders at JPMorgan, Citigroup and Bank of America bought more shares than they sold.”

Environment / Science

FT – Blue dogs of Mumbai expose poor pollution controls – Simon Mundy 8/28

  • “Roaming packs of stray dogs are an established part of the landscape of Taloja, an industrial district to the north-east of Mumbai. But when a group of them turned blue this month, environmental activists sounded the alarm at this vivid evidence of industrial failure to adhere to proper standards of pollution control.”
  • Photo from National Geographic
  • “Investigation of the phenomenon by Mumbai’s pollution control board (MPCB) led it to a more prosaic explanation: the dogs had wandered into the grounds of a factory run by Ducol Organics, a local paint and plastic producer.”
  • “The outcry over the colored dogs reflects rising concerns about pollution in India. A study in February by the US-based research group Health Effects Institute found that India was poised to overtake China as the country with the most deaths caused by air pollution.” 
  • “A study this year by researchers at the Indian Institute of Technology in Mumbai estimated premature deaths due to air pollution in Mumbai rose 62% to 32,014 between 1995 and 2015, outstripping the 41% population increase in the same period.”
  • “In New Delhi — which according to some estimates has the worst air of any major city in the world — the estimated death toll rose 147%, to 48,651.”

Economist – Louisiana fights the sea, and loses 8/26

  • “Between 1932 and 2010 the state [Louisiana] lost more than 1,800 square miles (470,000 hectares) of land to the sea, representing about 80% of America’s coastal erosion over the period. Recent losses have been especially severe because of an increase in big storms raging in from the Gulf of Mexico—such as Hurricane Katrina, in 2005, which led to the inundation of New Orleans and 1,836 deaths. Between 2004 and 2008 alone, Louisiana shrank by more than 300 square miles.”
  • For reference to the Hawaii readers, Oahu is 597 square miles and Maui is 727 square miles.
  • “According to a new report by RAND Corporation, a think-tank, infrastructure in the state worth up to $136bn could be threatened by land loss and increased storm damage, a related threat.”
  • “Starved of silt, and with less new organic matter to counteract its settling, coastal Louisiana is sinking back into its former watery state. Meanwhile, because of melting polar ice caps and thermal expansion, the sea level is rising. In the past decade the observed relative sea-level rise in coastal Louisiana—a figure that combines the effects of rising seas and subsiding land—was over a centimeter a year, or around four times the global average. The delta’s system of land creation has thus been thrown into reverse. In 1930, despite much engineering of the Mississippi’s channel, Louisiana was expanding by almost a square mile a year. Since then, an area the size of Delaware has been lost to the Gulf.”
  • One of the principal causes is due to the levees established by the Army Corps of Engineers along the Mississippi river to protect the flood basins back in the day. Trade-offs…
  • “The damaging effect of the levees was predicted. Weighing the benefits of engineering the Mississippi in 1897, a former president of the American Society of Civil Engineers, E.L. Corthell, noted the need to take into account ‘withholding by the levees…of the annual contributions of sedimentary matters” and, because of this, ‘subsidence of the Gulf delta lands below the level of the sea and their gradual abandonment.’ But while he warned that “the present generation should not be selfish,’ Mr Corthell assumed the economic benefits of protecting the flood zone would ‘be so remarkable that people of the whole United States can well afford, when the time comes, to build a protective levee against the Gulf waters.’”
  • “That illustrates two related weaknesses in much environmental policymaking: an assumption that future politicians will take a longer-term view than current ones, and an excessive willingness to discount the future costs of solving environmental problems caused today… In any event, it is doubtful such a scheme would be affordable or otherwise practical, considering the effects of rising sea levels and fiercer storms, both consequences of global warming…”

Britain

WSJ – Daily Shot: Datastream – UK Household Savings Ratio 8/29

  • “UK’s households are struggling. With real wage growth in negative territory, the household savings ratio is collapsing.”

China

WSJ – Evergrande’s Ever More Risky Bet on Chinese Housing – Jacky Wong 8/28

FT – China orders videotaping of retail investment sales – Tom Mitchell 8/29

  • “China’s banking regulator has issued new rules requiring financial institutions to make video and audio recordings of all investment product sales, saying they were needed to ‘further regulate market order and protect customer rights’.” 
  • “The recordings will also help state-owned banks and the government fend off compensation demands from retail customers when their investments turn sour.” 
  • “’If investors make irrational choices after sales staff have clearly explained the risks, then they will have to accept the consequences,’ said Zhao Xijun, a finance professor at Renmin University in Beijing. ‘In the event there is a dispute, the recordings can be used as evidence’.” 
  • “The new surveillance rules issued by the China Banking Regulatory Commission require financial institutions to preserve the recordings for six months after the relevant investment product has expired. Banks are also not allowed to market investments to customers who refuse to be recorded.” 
  • “The value of outstanding [Wealth Management Products] WMPs has soared from Rmb4.6tn ($690bn) at the end of 2011 to Rmb29tn last year, according to data from Wind Information. But year-on-year growth moderated in 2016 to 23%, compared to a 56% increase in the value of outstanding WMPs in 2015.” 
  • “Data for the value of WMP products sold this year are not yet available. In volume terms, Chinese financial institutions sold 43% more WMP contracts through August 25 compared to the same period a year earlier.” 

FT – Huarong chief warns of bubble in China’s distressed debt market – Don Weinland 8/28

  • “Bubbles in credit and real estate have led to a steady flow of bad debt in China for years. But now a bubble is forming in the market for the bad loans themselves, says the chairman of China’s largest state-controlled ‘bad bank’.”
  • “Banks in China are dealing with an onslaught of non-performing loans that have resulted from poor risk controls and years of loose monetary policy. Investors estimate that China’s stock of bad debt has risen to $3tn this year, in step with a decelerating economy. One prominent analyst said recently that the figure could be as high as $6.8tn.”
  • “As the pool of bad assets rises, so too has the number of Chinese investors willing to chase after bad debt portfolios.”
  • “But many of the newcomers had little experience investing in distressed debt and were pushing up prices for the assets at auctions, said Lai Xiaomin, chairman of China Huarong Asset Management, and a deputy to the 12th National People’s Congress.”
  • “Inexperienced investors presented the risk of creating new losses while also failing to resolve troubled loans, he said.”
  • “China has experienced steady deregulation in how distressed debt is bought and sold since the industry was launched 18 years ago.”
  • “Huarong, along with three other centrally controlled asset managers, was created by the ministry of finance in 1999 to absorb perilously high levels of bad debt from China’s largest commercial banks. At the time, the government directed banks to transfer $1.4tn to the four groups.”
  • “Since then, the asset managers have greatly expanded their businesses in China and globally, operating more like investment banks than bad debt investors. Huarong went public in Hong Kong in late 2015.”

India

Economist – Undue reverence for company founders harms Indian firms 8/26

August 11, 2017

Perspective

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

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

Worthy Insights / Opinion Pieces / Advice

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

  • Sometimes less is more.

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

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

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

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

Markets / Economy

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

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

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

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

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

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

Britain

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

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

China

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

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

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

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

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

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

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

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

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

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

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

July 27, 2017

Perspective

NYT – The Cost of a Hot Economy in California: A Severe Housing Crisis – Adam Nagourney and Conor Dougherty 7/17

  • “A full-fledged housing crisis has gripped California, marked by a severe lack of affordable homes and apartments for middle-class families. The median cost of a home here is now a staggering $500,000, twice the national cost. Homelessness is surging across the state.”
  • “The extreme rise in housing costs has emerged as a threat to the state’s future economy and its quality of life. It has pushed the debate over housing to the center of state and local politics, fueling a resurgent rent control movement and the growth of neighborhood ‘Yes in My Back Yard’ organizations, battling long-established neighborhood groups and local elected officials as they demand an end to strict zoning and planning regulations.”
  • “For California, this crisis is a price of this state’s economic boom. Tax revenue is up and unemployment is down. But the churning economy has run up against 30 years of resistance to the kind of development experts say is urgently needed. California has always been a desirable place to live and over the decades has gone through periodic spasms of high housing costs, but officials say the combination of a booming economy and the lack of construction of homes and apartments have combined to make this the worst housing crisis here in memory.”
  • “Housing prices in Los Angeles, San Francisco, San Jose and San Diego have jumped as much as 75% over the past five years.”
  • Thus democratic State Senator Scott Wiener has sponsored “…one of 130 housing measures that have been introduced this year, would restrict one of the biggest development tools that communities wield: the ability to use zoning, environmental and procedural laws to thwart projects they deem out of character with their neighborhood.”
  • “’We’re at a breaking point in California,’ Mr. Wiener said. ‘The drought created opportunities to push forward water policy that would have been impossible before. Given the breadth and depth of the housing crisis in many parts of California, it creates opportunities in the Legislature that didn’t exist before.'”
  • “For the past several decades, California has had a process that sets a number of housing units, including low-income units, that each city should build over the next several years based on projected growth. Mr. Wiener’s bill targets cities that have lagged on building by allowing developers who propose projects in those places to bypass the various local design and environmental reviews that slow down construction because they can be appealed and litigated for years.”
  • “The bill applies only to projects that are already within a city’s plans: If the project were higher or denser than current zoning laws allow, it would still have to go through the City Council. But by taking much of the review power away from local governments, the bill aims to ramp up housing production by making it harder to kill, delay or shrink projects in places that have built the fewest.”

Worthy Insights / Opinion Pieces / Advice

FT – China’s credit squeeze sends warning on global growth – William Sterling (Trilogy Global Advisors) 7/18

  • “China has sent a deflationary chill through global markets this year by engineering a major slowdown in the growth of bank credit in the country.”
  • “In fact, we would argue that the unravelling of many of the so-called ‘Trump trades’ in global markets this year reflects the deflationary chill that China’s credit squeeze is creating, rather than simply registering skepticism about Trump administration policies.”
  • “Over the course of little more than a year, China went from exporting deflation to helping create the “global reflation” theme that was evident in global equity markets in the second half of 2016.”
  • “The most important global policymaker nobody has ever heard of is Guo Shuqing, the recently appointed chief of the China Banking Regulatory Commission (CBRC).”
  • “With the implicit support of President Xi Jinping, Mr Guo has issued a flurry of new regulations aimed at tackling corruption and speculation, including a requirement that banks account for previously lightly regulated ‘wealth management products’ in line with capital adequacy regulations.”
  • “The result is that the credit impulse, best understood as ‘the rate of change of the rate of change’ of credit relative to GDP, has declined by a whopping 17.5% of GDP in the first quarter of 2017.” 
  • “In the meantime, expect weaker commodity prices and less upward pressure on US interest rates.”
  • “China’s impact on the world economy is significant. Over the past five years its nominal GDP has expanded by $3.7tn, an amount that exceeds the GDP of Germany. In contrast, the entire global economy has expanded its nominal GDP by only $2.2tn.”
  • “As well as accounting for nearly 170% of the growth in the world’s nominal GDP in this period, it seems that China may have made US corporate earnings great again. Per Commerce Department figures, rest-of-world profits for US corporations were up by 25% in the first quarter of 2017, while domestically generated profits were down slightly and well below their peak of 2014.”
  • “The key concern for global investors is that even though China’s credit policy may be almost as important to the global economy as shifts in Federal Reserve or European Central Bank monetary policy, China’s economic policymaking remains far less transparent than in many other key nations.”
  • “Monitoring China’s credit impulse, therefore, is perhaps the best means open to investors to ‘watch what they do, not what they say’.”

FT – Ignore the Cassandra chorus, rates won’t skyrocket – Scott Minerd (chief investment officer Guggenheim Partners) 7/17

  • “The simple truth is that, while rates may trend higher in the near term, the risk is that we have not reached the point where the macro economy can sustain persistently higher rates. If anything, political, military and market uncertainties would more likely lead to another sudden decline in rates rather than a massive spike upward.”
  • “Investors would be wise to ignore the growing chorus of Cassandra cries and look through the noise to the fundamentals. There are many things to be concerned about in the world but skyrocketing rates is not likely among them.”

A Teachable Moment – Numbers Can Lie – Tony Isola 7/20

  • “Narratives without statistics are blind, statistics without narrative are empty.” – Steven Pinker

NYT – Behind a Chinese Powerhouse (HNA) a Web of Family Financial Ties – David Barboza 7/18

NYT – Saudi King’s Son Plotted Effort to Oust His Rival – Ben Hubbard, Mark Mazzetti and Eric Schmitt 7/18

  • A family matter made public.

Project Syndicate – Why Do Cities Become Unaffordable? – Robert Shiller 7/17

  • “The question, then, is why residents of some cities face extremely – even prohibitively – high prices.”
  • “In many cases, the answer appears to be related to barriers to housing construction. Using satellite data for major US cities, the economist Albert Saiz of MIT confirmed that tighter physical constraints – such as surrounding bodies of water or land gradients that make properties unsuitable for extensive building – tend to correlate with higher home prices.”
  • “But the barriers may also be political. A huge dose of moderate-income housing construction would have a major impact on affordability. But the existing owners of high-priced homes have little incentive to support such construction, which would diminish the value of their own investment. Indeed, their resistance may be as intractable as a lake’s edge. As a result, municipal governments may be unwilling to grant permits to expand supply.”
  • “Insufficient options for construction can be the driving force behind a rising price-to-income ratio, with home prices increasing over the long term even if the city has acquired no new industry, cachet, or talent. Once the city has run out of available building sites, its continued growth must be accommodated by the departure of lower-income people.”
  • “But this tendency can be mitigated, if civil society recognizes the importance of preserving lower-income housing. Many of the calls to resist further construction, residents must understand, are being made by special interests; indeed, they amount to a kind of rent seeking by homeowners seeking to boost their own homes’ resale value. In his recent book The New Urban Crisis, the University of Toronto’s Richard Florida decries this phenomenon, comparing opponents of housing construction to the early-nineteenth-century Luddites, who smashed the mechanical looms that were taking their weaving jobs.”
  • “In some cases, a city may be on its way to becoming a ‘great city,’ and market forces should be allowed to drive out lower-income people who can’t participate fully in this greatness to make way for those who can. But, more often, a city with a high housing-price-to-income ratio is less a ‘great city’ than a supply-constrained one lacking in empathy, humanitarian impulse, and, increasingly, diversity. And that creates fertile ground for dangerous animosities.”

Real Estate

WSJ – Foreign Buyers Pump Up U.S. Home Prices – Laura Kusisto 7/18

  • “Foreigners are buying U.S. homes at a record rate, helping push up prices in coveted coastal cities already squeezed by supply shortages.”
  • “In all, foreign buyers and recent immigrants purchased $153 billion of residential property in the U.S. in the year ended in March, nearly a 50% jump from a year earlier, according to a National Association of Realtors report released Tuesday.”
  • “That surpassed the previous record for foreign investment set in 2015, when foreigners purchased nearly $104 billion of U.S. residential property.”

WSJ – Property Developers Push for Open Drinking on City Streets – Esther Fung 7/18

FT – Retail woes lead to rising commercial mortgage delinquencies – Joe Rennison 7/17

  • “We see a lot of retail loans defaulting at maturity. Borrowers are just unable to re-finance their loans.” – Mary MacNeill, managing director – Fitch Ratings

FT – Will the death of US retail be the next big short? – Robin Wigglesworth 7/16

  • “Credit Suisse estimates that as many as 8,640 stores with 147m square feet of retailing space could close down just this year — surpassing the level of closures after the financial crisis and dotcom bust. The downturn is hitting the largely healthy US labor market — the retail industry has lost an average of 9,000 jobs a month this year, according to the Bureau of Labor Statistics, compared with average monthly job gains of 17,000 last year.”

FT – Blackstone warns of internet impact on US shopping malls – Robin Wigglesworth 7/16

  • “’The retail industry is clearly facing headwinds. And it’s the first time we’ve seen secular rather than cyclical headwinds,’ said Nadeem Meghji, head of North American real estate at Blackstone. ‘We’re now seeing pressures even on luxury retailers, which I didn’t expect to happen as fast as it has.’”
  • “The market for second-tier enclosed malls has virtually frozen given how concerned investors are, but Mr. Meghji estimated that in the past two years prices may have plunged as much as 40% on average for the 1,100 enclosed regional malls in the US. Even for the top 50, prices have probably declined by 20%, the Blackstone executive said.”
  • “The private equity firm’s $102bn real estate arm still owns some grocery shop-anchored malls in high-density population areas, but no longer has any exposure to the enclosed shopping mall sector.”

Energy

FT – California confronts solar power glut with novel marketplace – Gregory Meyer 7/17

  • “California is a leader in solar and wind power. The Golden State is well on its way to reaching a self-imposed goal of getting a third of its electricity from renewable sources by 2020, part of an aggressive agenda to cut greenhouse gas emissions.” 
  • “Yet this bold strategy is causing complications. At noon on clear spring days, too much solar power courses through the state’s electrical grid. Generators must pay customers to take excess supply — a condition called “negative prices” — or unplug their plants. Still, California consumers have some of the highest electricity rates in the country.” 
  • “Amounts of electricity generated by the sun and wind can vary in the space of hours, however, as clouds darken the skies or breezes die down. Every day, solar power fades towards dusk just as people come home and turn on lights, air conditioners and televisions.” 
  • “The imbalance market helps to iron out utilities’ power scramble as supply and demand shift during the day. It builds on longstanding markets for power delivered hours, days or months ahead by offering power delivered between five and 15 minutes in advance. When California suddenly finds itself with too much electricity, other states can now absorb it, and vice versa.”
  • “Participants say the imbalance market lowers overall costs for customers, makes grids more reliable and reduces carbon dioxide emissions by using clean energy that might otherwise be shut off. The ISO says the market has used 412,000 megawatt-hours of surplus California renewable energy since 2015, displacing 176,000 tons of carbon.” 

Environment / Science

WSJ – Daily Shot: statista – 20 Worst Cities Worldwide for Air Pollution 7/26

Health / Medicine

FT – ‘Urgent wake-up call’ for male health as sperm counts plummet – Clive Cookson 7/25

  • “The sperm count of men in the western world has fallen by more than half over a period of 40 years, according to an international study described by its authors as ‘an urgent wake-up call’ about declining male health.”
  • “’Decreasing sperm count has been of great concern since it was first reported 25 years ago,’ said senior author Shanna Swan of Icahn School of Medicine at Mount Sinai, New York. ‘This definitive study shows . . . that the decline is strong and continuing.’”
  • “Professor Allan Pacey of Sheffield university, who has been skeptical about previous research showing declining sperm counts, said the latest research dealt with many of his criticisms. But he urged people to ‘treat this study with caution as the debate has not yet been resolved and there is clearly much work still to be done’.”
  • “Prof Pacey pointed out too that the reported decline from 99m to 47m sperm per milliliter still left the average count within what fertility clinics regard as the ‘normal’ range.”
  • “In northern Europe today more than 15% of young men had a sperm count low enough to impair their fertility, Prof (Richard) Sharpe (of Edinburgh University) added, and ‘this is likely to get worse rather than better’.”
  • “The combination of declining male sperm counts and a growing delay in couples trying for a baby — often until the woman is in her 30s and her own fertility is declining — created ‘a double whammy’ for natural conception in modern western societies, he said.”

Bloomberg – China’s Sperm Count Problem Has Created a Billion-Dollar Market 7/12

  • While the above article focused on samples from North America, Europe, Australia and New Zealand, China too has its problems.

Britain

FT – UK plans to ban sale of new petrol and diesel cars by 2040 – Jim Pickard and Peter Campbell 7/26

  • “UK environment secretary Michael Gove has announced plans to ban the sale of new petrol and diesel cars in Britain by 2040.”
  • “The announcement follows the lead set by France two weeks ago and will be set out in the UK government’s long-awaited ‘air quality plan’ on Wednesday.”
  • “Mr. Gove will say that all new cars will have to be fully electric within a quarter of a century. His promise to ban other engine types — including hybrids — shifts the government further from its existing position, which was an ‘ambition’ for all new cars to be zero-emissions by 2040.”
  • “The coalition government’s ‘carbon plan’ in 2011 also predicted that all new cars sold after 2040 would have to be emission free, to meet a target of having no petrol or diesel cars on the roads by 2050.”
  • “The announcement is a milestone in the shift towards electric cars, which currently account for less than 1% of UK sales.”

China

FT – Wang Qishan: China’s enforcer – Tom Mitchell, Gabriel Wildau, and Henny Sender 7/24

  • Arguably the second most powerful person in China.

WSJ – China’s Visible Hand Starts to Squeeze -Jacky Wong 7/18

  • “Macau looks likely to be another target of China’s efforts to contain leverage and capital outflows.”

FT – China’s railway diplomacy hits the buffers – James Kynge, Michael Peel and Ben Bland 7/17

  • “China’s ability to build high-speed railways more cheaply than its competitors gave the technology a central place in ‘One Belt, One Road’, Beijing’s ambitious scheme to win diplomatic allies and open markets across more than 65 countries between Asia and Europe by funding and building infrastructure.”
  • “But less than two years after these hopeful words were uttered, a Financial Times investigation has found that China’s high-speed rail ambitions are running off the tracks. Far from blazing a trail for One Belt, One Road, several of the projects have been abandoned or postponed. Such failed schemes, and some that are under way, have stoked suspicion, public animosity and mountains of debt in countries that Beijing had hoped to woo.”
  • “In terms of scale, the rail push ranks as one of the biggest infrastructure undertakings in history. The total estimated value of 18 Chinese overseas high-speed rail schemes — including one completed (the Ankara-Istanbul service), five under way and 12 more announced — amounts to $143bn, according to a study by the Center for Strategic and International Studies, a Washington-based think-tank, and the Financial Times. To put this number in context, the US-led Marshall Plan, which helped revive Europe after the second world war, was completed with $13bn in American donations, a sum equivalent to $130bn today.”
  • “The size of China’s grand design has made its many shortcomings all the more eye-catching. The combined value of cancelled projects in Libya, Mexico, Myanmar, the US and Venezuela is $47.5bn, according to FT estimates.”
  • “This is almost double the $24.9bn total value of the five projects under way in Laos, Saudi Arabia, Turkey and Iran, where two lines are under construction, according to CSIS estimates.”
  • “So why is it that so many rail projects backed by China’s unrivalled financing firepower, huge construction companies and advanced technology fall by the wayside? The answers reveal much about the limitations in Beijing’s global development vision.”
  • Mostly it’s “…the vastly divergent capacities to take on and absorb debt. China’s economic heft and authoritarian system allows companies that enjoy effective government guarantees to load up on loans and operate at a perennial loss. China Railway Corporation, the state-owned rail operator and investor in the country’s high-speed networks, has debts of Rmb3.8tn ($558bn), much more than the national debt of Greece. This is partly because much of the 22,000km of high-speed rail in China runs at a loss, officials say.”

FT – China’s Xi orders debt crackdown for state-owned groups – Tom Mitchell 7/15

  • “’Deleveraging at SOEs is of the utmost importance,’ the Chinese president said at this weekend’s National Financial Work Conference, which convenes only once every five years. He added that the country’s financial officials must also ‘get a grip’ on so-called ‘zombie’ enterprises kept alive by infusions of cheap credit.” 

FT – Chinese purchases of overseas ports top $20bn in past year – James Kynge 7/15

South America

FT – Venezuela’s economic and political crisis in charts – Lauren Leatherby 7/25

May 11, 2017

Worthy Insights / Opinion Pieces / Advice

Bloomberg View – After Comey, Justice Must Be Served – Michael Bloomberg 5/10

  • “Congress needs to get serious about holding the president accountable.”

NYT – The Princeling in the West Wing – Jill Abramson 5/10

Economist – Schumpeter: Harvard Business School risks going from great to good – A confidential memorandum of warning to its senior faculty 5/4

Markets / Economy

Economist – The world’s most valuable resource is no longer oil, but data 5/6

Real Estate

WSJ – Labor Shortage Squeezes Builders – Peter Grant 5/6

  • “Construction labor costs are rising an average of 4% to 5% annually, outpacing inflation, according to Anirban Basu, chief economist of the Associated Builders and Contractors. ‘The situation is going to get worse,’ he said.”
  • “Overall, the association said the industry needs 500,000 more workers. The trade group estimates 600,000 additional workers would be needed for the $1 trillion in infrastructure building and improvement for which President Donald Trump has said he would seek funding.”

Health / Medicine

Economist – Fatal attraction: The link between pollution and heart disease 5/4

  • “An experiment suggests pollutants build up in arterial plaques.”

Britain

FT – Cash is king in homes market but leaves many unable to buy – Chris Giles 5/9

China

WSJ – Rich, Young Chinese Are Buying Overseas Properties on Their Smartphones – Dominique Fong 5/9

  • “Millennials acquire real estate in other countries as hedge against a weakening currency, homes for their own children when they study abroad.”

NYT – A Chinese Giant Is on a Global Buying Spree. Who’s Behind It? – David Barboza 5/9

  • “According to corporate filings, state-backed banks have given HNA a $60 billion line of credit, a level of lending usually reserved for state-owned enterprises charged with carrying out the government’s policies.”
  • Seriously? We’ll if you’re going to give me money to place, I’ll place it.
  • For reference, “when the company was founded in 1993, China had just begun experimenting with private ownership, opening new economic zones and allowing companies to sell shares to the public. The Hainan provincial government asked Mr. Chen, a former pilot with the People’s Liberation Army, to help develop a regional carrier, one that would be partly owned by the state and partly owned by private investors.”
  • It has since become a private company and part of the HNA Group.
  • “In 1993, the company had just $17 million in revenue. Today, it has about $90 billion in annual revenue, most coming from companies acquired outside China.”
  • “HNA, of late, has embraced the government’s push to ‘go global’ and invest overseas, focusing on shipping, hotels, logistics and retail, amassing a $145 billion portfolio. Over the past three years, it has spent more than $30 billion, according to Dealogic.”

Russia

Economist – A new kind of revolution: Russians rebel against plans to tear down their homes 5/4

  • Earlier this year Moscow city authorities unveiled plans to demolish as many as 8,000 buildings and move up to 1.6m residents from ageing low-rise apartment blocks known as khrushchevki. The ambitious urban makeover could touch some 25m square meters of housing, cost at least 3.5 trillion roubles ($61bn), and run for more than 20 years. The plan is the brainchild of Moscow’s mayor, Sergei Sobyanin, and comes with the blessing of President Vladimir Putin. For some residents, it means a chance to ditch dilapidated housing. Others fear being thrown out of their homes, and are furious at the prospect.”

April 26, 2017

If you were to read only one thing…

WSJ – Another Bubble Bursts in Hong Kong – Jacky Wong 4/25

  • This one is the article in its entirety.
  • “Hong Kong’s stock market is becoming a byword for dangerous bubble-blowing.”
  • “The latest stock to burst is Fullshare Holdings, a Chinese property developer valued at around $7 billion. Its stock slumped 12% on Tuesday, before the company suspended trading in its shares. The plunge came after California-based short seller Glaucus Research, which has shorted Fullshare, published a report claiming the stock is ‘one of the largest stock manipulation schemes trading on any exchange anywhere in the world.’ Fullshare declined to comment, but said it would release a statement at a later point.”
  • “Glaucus’s claim, which is based on analysis of trading patterns and Chinese filings, may be hard to prove. But in truth, investors should have spotted problems at Fullshare a while back. The company, which was valued at an eye-watering ten times book value as recently as last autumn, has generated most of its profits recently from paper gains on its 8.2% stake in another developer Zall Group , whose share price tripled last year. The problem? Zall in turn earns most of its profit from a reciprocal 3.5% stake in Fullshare, whose shares doubled last year. The bubbles in both companies’ stocks have fed on each other, giving a false image of how their businesses are doing.”
  • “Zall declined to comment.”
  • “If that weren’t enough, trading in Fullshare has also shown some unusual patterns. Glaucus says the stock has shown abnormally high returns in the final hour of trading—a pattern that was seen in previous Hong Kong stock bubbles such as Hanergy and Tech Pro. A look at trading data from FactSet from January to April this year seems to confirm the thesis. An investor buying Fullshare’s stock one hour before the market close and selling it at close, would have made a 44% return over the period. A simple buy-and-hold strategy, however, would have lost the investor 14%.”
  • More risky still is the way both Fullshare and Zall have loaded up on debt using their overpriced stocks. As of December, Zall had pledged all its Fullshare stocks in return for a loan. Fullshare had likewise pledged a large portion of its financial assets, which are mainly Zall shares. Zall’s chairman has also pledged 8% of the company’s shares to borrow money. If lenders to the companies are worried about the value of their collateral, they could dump the shares into the market, potentially leading to a stampede—similar to the recent fate of China Huishan Dairy, whose shares dropped 85% in an hour last month.”
  • Who could suffer when the bubble finally pops? Passive funds that were forced to buy the company when MSCI added the stock to its indexes in November. Vanguard, for example, owns 1.4% while BlackRock has 0.9%, according to FactSet.
  • “Fullshare’s stock price has never been sustainable given its high valuation and lack of a strong underlying business, but the latest report could be the final straw.”
  • Shenanigans…

Perspective

Economist – The tempest: Workers in southern Europe are stuck in lousy jobs 4/20

  • “Dead-end, fixed-term jobs have haunted southern Europe for decades. In 2015 over half of employed 15-to-29 years olds in Spain were on temporary contracts, compared to two-fifths in Italy and just under a quarter in Greece; the average across the European Union is 14%.”
  • Economist_European temporary employment_4-20-17
  • Economist_European changes in temporary employment_4-20-17

Worthy Insights / Opinion Pieces / Advice

The Reformed Broker – Contra Einhorn – Joshua Brown 4/25

  • “More importantly, when Einhorn asserts that ‘There was no catalyst that we know of that burst the dot-com bubble in March 2000,’ he’s not correct. There was one. It was a Barron’s article, published over the weekend leading into Monday, March 20th. That was the top for the Nasdaq Composite (the rest of the market – aka ‘Old Economy’ stocks had already begun selling off as no one wanted anything non-dot com).”
  • “The article was called ‘Burning Fast‘ by Jack Willoughby and it may have been the most important piece of investment journalism ever up until that time.”

NYT – The Low-Inflation World May Be Sticking Around Longer Than Expected – Neil Irwin 4/26

Markets / Economy

FT – The five markets charts that matter for investors – FT Reporters 4/26

  • “The problem the US now faces is it has to normalize interest rates, but with the smallest 50% of companies already spending 30% of profits (and at peak EBIT) on interest rate costs, any move upwards is likely to push up interest cost to dangerous levels.” – Andrew Lapthorne, Societe Generale
  • FT_Interest rate costs as percentage of earnings for US non-financial cos_4-26-2017

Real Estate

WSJ – Concern Over Manhattan’s One Vanderbilt Project Grows – Peter Grant 4/25

WSJ – Rising Home Prices Raise Concerns of Overheating – Laura Kusisto 4/26

WSJ_Rising US Home prices_4-26-17

Tech

Economist – Cloning voices: Imitating people’s speech patterns precisely could bring trouble 4/20

Asia – excluding China and Japan

Economist – The rise of intolerance: Indonesia has been mercifully resistant to extremism-until now 4/20

  • “A local election shows how the unscrupulous can manipulate religion to win office.”

Britain

FT – UK public finance: councils build a credit bubble – John Plender 4/25

  • “UK local councils are engaging in what is known in the financial jargon familiar to hedge fund managers as a carry trade – a form of arbitrage whereby they borrow at rates much lower than private sector borrowers can obtain in order to invest in property that shows a much higher yield. Money borrowed at 2.5% or so is typically going into property yielding 6-8% or more.”

China

NYT – Debt Crisis Shakes Chinese Town, Pointing to Wider Problems – Keith Bradsher 4/25

  • “The problem: Local companies had agreed to guarantee hundreds of millions of dollars of one another’s loans. When some of those loans went bad, the impact rippled across the city.”
  • “Zouping’s plight offers a sobering example of the problems that could lurk within China’s vast and murky debt load. A nearly decade-long Chinese lending spree drove growth but burdened the economy with one of the world’s heaviest debt loads, equal to $21,600 worth of bank loans, bonds and other obligations for every man, woman and child in the country. Debt in China has expanded twice as fast as the overall economy since 2008.”
  • “China, the world’s second-largest economy after the United States, has considerable firepower to address any financial crisis. But many economists worry that hidden debt bombs could expose the breadth and severity of the problem.”
  • “The Chinese government has begun an urgent effort to discourage companies from guaranteeing one another’s bank debts, ordering local banking regulators across the country to file comprehensive reports by the end of the month on the problem. But sussing out the extent could be difficult.”

FT – China’s steel battles with west set to intensify – Lucy Hornby 4/25

  • “China’s steel battles in Europe and North America are likely to be only a prelude of bigger future fights as softening domestic demand unleashes a flood of output on to world markets. “
  • “China’s steel industry is the world’s largest, by far: at 808m tons last year it accounted for half of global production.”
  • FT_World steel production 2016_4-25-2017
  • “About 90% of Chinese mill output to date has been absorbed at home — but domestic consumption peaked in 2013. As China’s economic growth slows and infrastructure and property construction hits saturation point, more steel is poised to flow to global markets.”
  • “Last year China exported 109m tons, or 14% of its output — more than the total output of ArcelorMittal, the world’s largest steelmaker.”
  • FT_China steel consumption and exports_4-25-2017
  • “Because China’s steel industry is so big, every increase of 1% in exports is almost the equivalent of the entire export market for American steel mills.”
  • “But China is not a big source of American steel imports. ‘They are actually more worried about competition in third countries. It’s not so much about the Chinese presence in the US market,’ said Mei Xinyu, a strategist for the Chinese ministry of commerce.”
  • FT_Source of US steel imports_4-25-2017
  • FT_China steel export destinations_4-25-2017
  • “A pick-up in Chinese consumption this year could stave off the deluge for now. But unless there is a drastic cut in Chinese output, the prospect of a flood of Chinese steel on to global markets is not going away.”

Other Links

WSJ – Growing Homelessness Problems Spur Interest in Tiny Houses – Zusha Elinson 4/26