Tag: Canada

October 13 – October 19, 2017

The corporate drug industry has had many friends in Washington D.C. until now… Amazon is taking over the package room of your apartment building. China’s property boom unlikely to end anytime soon.

Headlines

Economist – The Philippine army recaptures a city seized by Muslim insurgents 10/17. After 5 months, the Philippine forces of President Rodrigo Duterte took back the city of Marawi on the island of Mindanao.

FT – Wanda golf courses closed in China austerity push 10/15. The two courses are in the $3bn Changbaishan resort in Fusong. The why – because new courses were banned in 2004; however, many developers were able to work their way around the rules…until now.

NYT – Kobe Steel Problems May Be More Widespread, Raising Fears on High-Speed Rail 10/12. So about that falsified data…we…didn’t…quite…tell…you…about…all…of…it…sorry.

WSJ – Nordstrom Family Suspends Effort to Take Retailer Private 10/16. That’s how strong the narrative is right now against the retail industry, even the Nordstrom family is having difficulty finding investors to fund the debt of the acquisition (despite the world being awash in cash and the tight spreads on high yield products).

WSJ – Hedge Fund Maverick Capital Debuts 0% Performance Fees 10/19. After losing 10% in 2016 and being down 2% so far this year (mind you that the market is up over the same time period), Maverick is offering some investors a 0% performance fee and 1% management fee on new money for its “recovery shares”.

Worthy Insights / Opinion Pieces / Advice

A Teachable Moment – Generation Kill – Anthony Isola 10/16

  • “Young people are killing their chances of building wealth.”

A Wealth of Common Sense – How to Invest At All-Time Highs – Ben Carlson 10/18

  • “The S&P 500 Index has recorded more than 150 new all-time highs since eclipsing its previous peak in late March of 2013. In 2017 alone, there have been 30 new record highs through the end of last week. To put this into perspective, there were only 13 new highs for the entire decade of the 2000s.”

BuzzFeed – Watching Harvey Weinstein Fall, Trump’s Accusers Feel Frustrated – Kendall Taggart & Jessica Garrison 10/14

Economist – Crafty app developers are ripping off big-name brands 10/12

  • Be careful which apps you load onto your phones.

FT – Under Xi Jinping, China is turning back to dictatorship – Jamil Anderlini 10/10

  • “The rejection of ‘western’ political systems has been made easier recently by what the Chinese see as the ludicrous buffoonery of Donald Trump and, to a lesser extent, the self-inflicted damage of Brexit and EU infighting.”
  • “As a top foreign policy adviser recently told one of my colleagues: ‘Trump never talks about democracy or American leadership or liberty — we should not be so stupid to worship things that in the western world are now in doubt.’”
  • Be cautious in your use of ‘private’ messaging services such as WeChat. Big brother is watching.

FT – Hollywood’s masculinity problem – the full picture – Kate Muir 10/12

FT – The implications of shelving the Aramco IPO – Nick Butler 10/14

FT – The disruptive power of renewables – Nick Butler 10/15

NYT – Stranded by Maria, Puerto Ricans Get Creative to Survive – Caitlin Dickerson 10/16

NYT – Inside a Secretive Group Where Women Are Branded – Barry Meier 10/17

  • Another example of the power of peer pressure and social learning.

Project Syndicate – The Psychology of Superstar Sex Predators – Raj Persaud & Peter Bruggen 10/19

The Guardian – Meet the new class traitors who are coming out as rich – Alissa Quart 10/16

The New Yorker – Carl Ichan’s Failed Raid on Washington – Patrick Radden Keefe 8/28

Perspective

How Much – The Largest Industry In Each State by GDP – Raul 10/9

WEF – Tech Insider: World Forecasted Population Growth – Gerald Chirinda 10/11

How Much – Can you Retire on $1 Million? Here is How Long You Can Survive in Every State… – Raul 10/12

Top 5 Friendly States for Retirement

  1. Mississippi  – $1 million lasts 25 yrs 6 months
  2. Arkansas – $1 million lasts 25 yrs
  3. Tennessee – $1 million lasts 24 yrs 5 months
  4. Kansas – $1million lasts 24 yrs 5 months
  5. Oklahoma – $1million lasts 24 yrs 4 months

Top 5 least Friendly States for Retirement

  1. Hawaii – $1 million lasts 13 yrs 1 months
  2. District of Columbia – $1 million lasts 14 yrs 2 months
  3. California – $ 1million lasts 15 yrs
  4. Oregon – $1 million lasts 16 yrs 7 months
  5. New York – $1 million lasts 16 yrs 7 months

VC – The Global Leaders in R&D Spending, by Country and Company – Jeff Desjardins 10/13

Pew – Share of counties where whites are a minority has doubled since 1980 – Drew Desilver 7/1/15

How Much – Best US Cities for Families to Save Money – Raul 10/16

The Best Places for Families to Save Money

  1. Spokane, WA; +$83,400
  2. Henderson, NV; +$59,100
  3. North Las Vegas, NV; +$56,600
  4. Las Vegas, NV; +$55,900
  5. Reno, NV; +$48,800

The Worst Places for Families to Save Money

  1. San Francisco, CA; -$62,300
  2. New York, NY; -$54,100
  3. Boston, MA; -$34,000
  4. Washington DC; -$22,200
  5. Philadelphia, PA; -$9,100

VC – How Many Hours Americans Need to Work to Pay Their Mortgage – Jeff Desjardins 10/17

The Republic – Phoenix is getting hotter – and so is the danger – Brandon Loomis 10/18

Pew – Amid decline in international adoptions to U.S., boys outnumber girls for the first time – Abby Budiman and Mark Hugo Lopez 10/17

Bloomberg – Smartphones Are Killing Americans, But Nobody’s Counting – Kyle Stock, Lance Lambert, and David Ingold 10/17

Markets / Economy

Bloomberg Businessweek- Dollar General Hits a Gold Mine in Rural America 10/11

Bloomberg – The Glut of Private Jets Means ‘Insane’ Bargains for Buyers 10/8

Bloomberg – One of the Biggest ICOs Yet Crashes Before It Even Launched 10/19

WSJ – This Market’s Running on Hope, Not Profits 10/12

WSJ – Daily Shot: Bitcoin 10/17

Bloomberg – JPMorgan, Citigroup Expect More Credit-Card Users to Default – Hugh Son, Dakin Campbell and Jennifer Surane 10/12

Real Estate

Bloomberg Businessweek – Distressed Investors Are Already Buying Houston Homes for 40 Cents on the Dollar 10/12

WSJ – Global Investors Pour Billions Into Hudson Yards in Major Bull Market Bet 10/17

WSJ – How Some Malls Manage to Stay Alive Years After Losing Their Mojo 10/17

WSJ – In London, Some Home Buyers Can Only Stay a Few Years 10/19

WSJ – Daily Shot: John Burns RE Consulting – US Housing Supply Overview 10/17

WSJ – Daily Shot: FRED – Multifamily Housing Units Under Construction 10/19

Finance

Economist – Buttonwood: The finance industry ten years after the crisis 10/14

WSJ – Daily Shot: Commonwealth of Puerto Rico GO Bond 10/15

  • “Puerto Rico’s general obligations (GO) debt keeps tumbling. The 8%-coupon bond ‘maturing’ in 2035 is trading at 33 cents on the dollar.”

WSJ – As Edward Jones Tops $1 Trillion in Assets, It Seeks Street Cred – Lisa Beilfuss 10/16

WSJ – Daily Shot: Corporate High-Yield Bond Spreads 10/18

Environment / Science

Economist – Offshore wind farms will change life in the sea 10/12

Bloomberg – There’s a Climate Bomb Under Your Feet 10/6

NYT – LIGO Detects Fierce Collision of Neutron Stars for the First Time – Dennis Overbye 10/16

Project Syndicate – Hurricanes’ Unnatural Toll 10/13

WSJ – Your Next Home Could Run on Batteries 10/15

Economist – Why the North American west is on fire 10/13

  • “The west of the United States has endured some 50,000 wildfires this year, and over 8.5m acres (3.4m hectares) have burned. Northern California has suffered in particular recently as flames have swept through parts of the landscape, killing at least 23 people and devastating wineries. In Canada, as of August 30th (the latest available figure), 7.4m acres had burned.”
  • “Ernesto Alvarado of the University of Washington, who specializes in large fires, says that historically portions of the forests of America’s north-west would burn every five to 20 years. In many areas, however, these fires have been suppressed for over a century by the needs of loggers and residents. Over time, undergrowth, saplings and dead trees accumulate, creating conditions in which a fire can spread very rapidly. Furthermore, a recent reduction in logging has led to an even closer packing together of trees. ‘To maintain good forest health in many of these forests, you need fire,’ says Dr. Alvarado. While some burns are prescribed, they are a fraction of what is required. In Washington, for instance, between 2001 and 2014 the Forest Service burned just 2% of the state’s 9.3m acres of forest.”
  • “In terms of scale, 2017 is not actually an outlier. In the past decade, wildfires have burned an average of 6.6m acres each year in the United States and 6.2m acres in Canada. The particular problem this year is the dispersed nature of the blazes.”
  • “The current state of the north-western forests, combined with the effects of climate change, increase the likelihood that wildfires will be worse in future… Little can be done to reduce the danger without a dramatic increase in prescribed burns, and these are unlikely as people continue to move into forested areas. One further consequence: the smoke and ash that drift across densely inhabited areas affect human health, too. A study by the universities of Harvard and Columbia of slash-and-burn fires in Indonesia in 2015 blamed the fires for 100,000 additional deaths and 500,000 injuries in Indonesia, Singapore and Malaysia. Where there’s smoke, there’s fire: this year’s haze presages years of potentially more ferocious burns.”

Asia – excluding China and Japan

NYT – U.S. Stood By as Indonesia Killed a Half-Million People, Papers Show 10/18

WSJ Video – Inside the Philippines’ Bloody War Against Islamist Militants 10/18

Canada

WSJ – Canada Imposes Tougher Mortgage Rules Effective 2018 – Paul Vieira and Vipal Monga 10/17

  • “Canada’s banking watchdog unveiled tougher mortgage-financing rules that take effect on Jan. 1 that real estate watchers and economists say could dramatically slow house buying and borrowing.”
  • “The most notable measure is a provision that would require all prospective buyers—even those with a down payment of over 20%—to undergo a so-called stress test before a bank can issue a loan. Previously, only buyers with a down payment of less than 20% had to undergo a stress test. Under the stress test, prospective buyers would have to qualify for a mortgage at a rate at whichever is greater: either 2 percentage points above the negotiated rate, or the Bank of Canada’s five-year benchmark rate. The central bank’s five-year rate stands at 4.89%. The regulator originally proposed the test just cover two percentages point above the negotiated mortgage.”
  • “Robert McLister, founder of the Canadian mortgage-rate comparison site RateSpy.com, said the new rules target the fastest-growing part of the mortgage market—uninsured mortgages—and could affect one out of every six prospective home buyers. In Canada, mortgage insurance is mandatory unless the buyer has a down payment of 20% and over.”
  • “’This is easily the most groundshaking mortgage rule of all time, and that’s not an understatement,’ Mr. McLister said in an interview.”
  • “Economists said the tougher mortgage regulations will further hit a softening housing market. Recent data from the Canadian Real Estate Association indicated unadjusted sales in September were 11% below year-ago levels, and price growth has slowed considerably, especially in the Toronto market after the introduction of a foreign-buyer’s tax in southern Ontario.”
  • “TD Bank’s economics team said it anticipates the measures will depress housing demand by 5% to 10% once fully implemented.”

China

FT – China’s $150bn debt-for-equity swap shows signs of fizzling 10/18

WEF – Deloitte: China will grow old before it gets rich – Alex Gray 10/6

WSJ – China’s Greatest Challenge – Anjani Trivedi 10/16

  • Debt…

  • NBFI = Nonbank Financial Institutions

FT – China residential property sales see first fall in 21/2 years – Hudson Lockett 10/18

  • Okay, but look at the volatility. Geez.

Japan

WSJ – Corporate Scandals Say More About Japan Than the Nikkei 10/12

WSJ – Daily Shot: Moody’s Investor Service – Decline of Japan’s Working Age Population 10/18

Middle East

Reuters – Saudi needs Aramco billions as recession slows austerity drive 10/19

FT – Qatar’s wealth fund brings $20bn home to ease impact of embargo – Andrew England and Simeon Kerr 10/18

  • “Qatar’s sovereign wealth fund has brought more than $20bn back onshore to cushion the impact of a regional embargo imposed on the Gulf state.”
  • “Ali Shareef al-Emadi, Qatar’s finance minister, told the Financial Times that Qatar Investment Authority deposits were being used to create a ‘buffer’ and provide liquidity in the banking system after the gas-rich state suffered capital outflows of more than $30bn.”
  • “That followed the decision by Saudi Arabia, the United Arab Emirates, Bahrain and Egypt to cut diplomatic and transport links with the nation in June. The move has triggered the Gulf’s worst crisis in years.”
  • “Moody’s, the rating agency, said last month that Qatar had injected $38.5bn into its economy since the crisis erupted.”

WSJ – Daily Shot: BMI Research  – Saudi Arabia GDP Change Year-over-Year 10/17

South America

FT – IMF crunches the numbers for possible Venezuela rescue 10/15

Featured

WP – The drug industry’s triumph over the DEA – Scott Higham and Lenny Bernstein 10/15

  • Let it be noted the power of this reporting resulted in Rep. Tom Marino withdrawing from consideration to lead the Office of National Drug Control Policy and it appears that the public is more aware of this problem…
  • “In April 2016, at the height of the deadliest drug epidemic in U.S. history, Congress effectively stripped the Drug Enforcement Administration of its most potent weapon against large drug companies suspected of spilling prescription narcotics onto the nation’s streets.”
  • “By then, the opioid war had claimed 200,000 lives, more than three times the number of U.S. military deaths in the Vietnam War. Overdose deaths continue to rise. There is no end in sight.”
  • “A handful of members of Congress, allied with the nation’s major drug distributors, prevailed upon the DEA and the Justice Department to agree to a more industry-friendly law, undermining efforts to stanch the flow of pain pills, according to an investigation by The Washington Post and ’60 Minutes.’ The DEA had opposed the effort for years.”
  • “The law was the crowning achievement of a multifaceted campaign by the drug industry to weaken aggressive DEA enforcement efforts against drug distribution companies that were supplying corrupt doctors and pharmacists who peddled narcotics to the black market. The industry worked behind the scenes with lobbyists and key members of Congress, pouring more than a million dollars into their election campaigns.”
  • “The chief advocate of the law that hobbled the DEA was Rep. Tom Marino, a Pennsylvania Republican who is now President Trump’s nominee to become the nation’s next drug czar. Marino spent years trying to move the law through Congress. It passed after Sen. Orrin G. Hatch (R-Utah) negotiated a final version with the DEA.”
  • “For years, some drug distributors were fined for repeatedly ignoring warnings from the DEA to shut down suspicious sales of hundreds of millions of pills, while they racked up billions of dollars in sales.”
  • “The new law makes it virtually impossible for the DEA to freeze suspicious narcotic shipments from the companies, according to internal agency and Justice Department documents and an independent assessment by the DEA’s chief administrative law judge in a soon-to-be-published law review article. That powerful tool had allowed the agency to immediately prevent drugs from reaching the street.”
  • “Political action committees representing the industry contributed at least $1.5 million to the 23 lawmakers who sponsored or co-sponsored four versions of the bill, including nearly $100,000 to Marino and $177,000 to Hatch. Overall, the drug industry spent $106 million lobbying Congress on the bill and other legislation between 2014 and 2016, according to lobbying reports.”

WSJ – Amazon and Big Apartment Landlords Strike Deals on Package Delivery – Laura Kusisto 10/17

  • “Amazon.com Inc. is taking over the package rooms of some of the country’s largest apartment landlords, in a move that could help consolidate its control over how goods make it from the warehouse floor to the front door.”
  • “Amazon has signed contracts with apartment owners and managers representing more than 850,000 units across the U.S. to begin installing Amazon locker systems in their buildings, according to the landlords. Amazon has commitments to install the lockers in thousands of properties, many before the peak holiday shopping season, according to a person familiar with the matter.”
  • “Several of the nation’s largest operators, AvalonBay Communities Inc., Equity Residential , Greystar and Bozzuto Group, have signed up, company executives said.
  • For several years, landlords have struggled with how to manage the mountains of packages they receive each day. Staff at larger buildings end up devoting several hours a day sorting mail, while boxes are piled in every spare cranny. Most say it is the single largest problem they face.”
  • “The locker program, dubbed Hub by Amazon, will accept packages from all carriers and not just for purchases made on Amazon. They will be open only to residents, not the wider community. Residents will receive a notification when they have a package and a code allowing them to open one of the slots.”
  • “Apartment owners pay about $10,000 to $20,000 to purchase the lockers initially and don’t pay a monthly fee. Most landlords said they don’t plan to charge residents initially but to offer it as an amenity. They could also make back some of that cost in savings on staff labor.”
  • “Karen Hollinger, vice president of corporate initiatives at AvalonBay, which has an ownership interest in about 80,000 apartments, said the average apartment community in the company’s portfolio receives some 1,000 packages a month, up from 650 a year ago. She said AvalonBay has seen a 20% to 30% annual increase in the volume of packages it receives for the past four years.”
  • “Amazon has been searching for ways to make deliveries cheaper. It has recruited a fleet of citizen drivers via its Flex program, which allows people to drop off packages from their cars. It has developed its own air and cargo networks, too.”
  • “The most expensive leg of any delivery is known as the last mile: getting a package to the doorstep. Amazon already has added lockers throughout the U.S., including an announcement that it is rolling them out at its newly acquired Whole Foods stores.”

FT – Chinese property boom props up Xi’s hopes for the economy – Tom Hancock & Gabriel Wildau 10/18

  • “As China’s Communist party elite gather in Beijing this week to select its top leaders, President Xi Jinping has benefited from the strong recent performance of the economy, which is poised for its first year-on-year acceleration in growth since 2010. On Thursday China reported that gross domestic product grew 6.8% in the third quarter, ahead of Beijing’s full-year target.”
  • “That rebound owes much to the confidence of homebuyers. Housing prices and construction starts rebounded from a slump in 2014-15, boosting overall business investment and driving demand for output from China’s huge manufacturing sector.”
  • “The property sector has been given a helping hand. Urged on by Beijing, 38% of all bank loans issued in the 12 months to August were home mortgages, according to official data, and local governments purchased 18% of all residential floor space sold last year as part of a drive to provide affordable housing, according to estimates by E-House China Research Institute.”
  • “The result has been another heady boom in construction. Rome was not built in a day, but based on residential floor area completed last year, China built the equivalent of a new Rome about every six weeks.”
  • “With the surge in housing investment has come a round of questions about a potential bubble in the market and the implications for the long-term health of China’s economy.”
  • “Some economists and investors warn that short-term growth from the latest housing boom has come at a cost: inflating a property bubble whose eventual bursting will inflict great pain. A senior Chinese legislator recently warned in unusually blunt terms that the economy has been ‘kidnapped’ by property.” 
  • “But others insist that fears of a bubble are overstated. On this view, economic fundamentals justify substantial investment in housing, especially in inland cities where development still lags far behind wealthy coastal areas. These more sanguine observers also note that outrageous price levels for Chinese apartments are mainly restricted to the megacities like Beijing and Shanghai.” 
  • “The stakes in this debate are high. Chinese residential property is arguably the world’s most important asset market. The sector drives global commodity prices, making the difference between growth and stagnation for resource exporters like Australia and Brazil.” 
  • “’It’s never wrong to express worry over China’s housing market,’ says Larry Hu, China economist for Macquarie Securities in Hong Kong. ‘But it’s interesting to consider why the housing sector has become the Bermuda Triangle for economic forecasters. So many smart people have made wrong predictions about it.’”
  • “The leading claim of the housing bears is that after a 15-year construction boom, China has built most of the housing it needs to meet fundamental demand. On this view, investors speculating on price gains, not families seeking shelter, now drive the market.”
  • “’People buy property not because they like the property, but because the price is rising,’ says Ning Zhu, professor at the Shanghai Advanced Institute of Finance and author of China’s Guaranteed Bubble. ‘It’s this panic that if they don’t buy now they will never be able to afford it.’” 
  • “Central to this narrative is the notion of ‘ghost cities’ — huge blocks of empty apartments where expected demand never materialized.” 
  • “In Mr. Xi’s speech at the opening of the congress on Wednesday, he repeated his mantra that ‘houses are for living in, not for speculation’.”
  • “Yet even in major cities, evidence suggests that there are a substantial number of empty flats held for investment purposes. A survey by FT Confidential Research, an independent research service owned by the Financial Times, found that 32% of families own at least one home that is vacant.” 
  • “An estimated 50m homes, or 22% of the total urban housing stock, were vacant in 2013, according to the most recent data from the China Household Finance Survey led by Li Gan, economics professor at Texas A&M University.” 
  • “Further underpinning the bearish outlook is the belief that fundamental demand for new housing is drying up.” 
  • “The extraordinary transformation of China’s economy over the past 40 years was driven by the migration of farmers into cities. That urbanization process is now slowing, however, as relatively few young people remain in rural China.” 
  • “The number of migrant workers living outside their home province rose by 12m in the five years through to June this year, compared with an increase of 26m in the five years ending June 2012, according to official data.” 
  • Says Mr. Xie (Andy Xie, an independent economist and former Morgan Stanley chief Asia-Pacific economist): ‘If you go into villages, there are no young and middle-aged people any more. Where is this next wave of urbanization supposed to come from?’”
  • “To longtime observers of China’s economy, the current hand-wringing over the property market feels familiar.”
  • “After two years of falling prices and sluggish sales, analysts were warning in early 2016 that some smaller cities had enough unsold inventory to last for years.” 
  • “Yet by August this year, inventories in the 80 cities tracked by E-House China Research Institute stood at their lowest level in almost five years.” 
  • “Perceptions of unreasonably high housing prices appear to be disproportionately influenced by trends in first-tier cities — Beijing, Shanghai and Shenzhen. All three rank among the world’s most expensive in terms of price-to-income ratio.” 
  • “Of the 70 cities in the official price survey, however, 12 have seen outright price falls in the three years through to August this year. In a further 29 cities, prices rose by less than 10% in the same period. Meanwhile, median per capital disposable income has grown 28% in roughly the same period.”
  • “Despite major concerns about Chinese corporate debt, household borrowing remains low by international standards at 37% of GDP, compared with 79% in the US and 59% in the euro area, according to the Bank for International Settlements. And Chinese homebuyers use less debt and more equity than counterparts in the US. The average down payment on Chinese home mortgages extended in 2016 was 40%.” 
  • Despite their differences, both sides in the debate mostly agree that an outright crash of the housing market is unlikely. Chinese savers have few options for investing their money. The stock market is volatile, returns on bank deposits are meagre and foreign exchange controls largely prevent households from buying foreign assets. Housing is the least bad option for many investors.” 
  • The combination of capital controls with years of monetary stimulus virtually ensures that ‘trapped cash’ will slosh through different asset classes, creating bubble-like conditions that the government either encourages or struggles to contain.” 
  • “Still, given the pain that would result from an abrupt policy shift, analysts widely expect that Beijing will continue the current approach, tightening controls when the market gets too hot, while priming it with cash when it slows too sharply.” 
  • “’The government is really losing its credibility,’ says Mr. Ning. ‘At this point everyone realizes they don’t really intend to crack down on the housing market.’

October 10, 2017

Perspective

Business Insider – Forget stealing data – these hackers broke into Amazon’s cloud to mine bitcoin – Becky Peterson 10/8

  • Hackers are seeking ways into corporate computers and cloud space to gain access to computing power in order to mine bitcoin.

NYT – Wall Street Firms Gambled on Puerto Rico. They’re Losing. – Matthew Goldstein 10/9

Worthy Insights / Opinion Pieces / Advice

WSJ – The Truth Is Catching Up With Tesla – Charley Grant 10/7

  • “CEO Elon Musk is a visionary, but there is a fine line between setting aggressive goals and misleading shareholders.”

FT – Tech’s fight for the upper hand on open data – Rana Foroohar 10/8

  • “What happens if big companies control who has access to the marketplace of ideas?”
  • “Whether your concern is anti-competitive business practices, or the preservation of free speech, one thing that we have to grapple with is that we are both the raw material and the end consumer of what is being sold online. We are the product.”

WSJ – Why Bitcoin’s Bubble Matters – Rob Curran 10/8

  • “Ask most people about the bitcoin bubble, and they’ll probably have the same reaction: It’s interesting, but it won’t affect me. After all, they’ll figure, they aren’t investing in bitcoin, so if there is a bubble, and it does burst, they’ll be just fine.”
  • “Well, maybe they should start worrying.”
  • “The market for cryptocurrencies—digital tokens used to transfer money between individuals’ computers with minimal fees—has grown in stature in recent years and is increasingly entwined with broader financial markets as well, a trend that is likely to continue. Bitcoin is now traded by some of the institutional investors around which bond and stock markets revolve.”
  • “As the bubble grows, analysts say, a crash has a greater chance of affecting investor sentiment about stocks, especially in the technology and financial sectors.”
  • “’Any product that blows up, there’s always collateral damage,’ says Joe Kinahan, chief market strategist at brokerage TD Ameritrade . Tech and financial ‘companies who are relying on it for business, and those who have put a significant investment into the [blockchain] infrastructure would be the first’ to suffer collateral damage, Mr. Kinahan says.”
  • “At around $150 billion, the market capitalization of bitcoin and other cryptocurrencies is up by a factor of roughly eight this year, according to the Cointelegraph website. If this growth rate continues, what’s now a relatively small part of global investible assets could become a significant one, says Lorenzo Di Mattia, manager of hedge fund Sibilla Global Fund and a student of the history of speculation. By next year, Mr. Di Mattia expects the bubble to have inflated to the point where a pop could send a shock wave through the stock market.”
  • “Give bitcoin its due: Most people in finance agree that bitcoin and the blockchain, the open-access ledger that underpins the currency, were great inventions; even as J.P. Morgan’s Mr. Dimon derides bitcoin as a ‘fraud,’ his bank is working on its own blockchain technology.”
  • “Clever as it is, however, bitcoin has shown no signs of replacing the dollar and other ‘fiat’ currencies.”
  • “Meanwhile, speculation in bitcoin—driven by hopes of its wider adoption—actually has diminished its usefulness as a means of exchange.”
  • So speculation for now.
  • Some that are exposed…“a crash in the price of leading cryptocurrencies would almost certainly hurt shares of Nvidia Corp., the chip maker that was the biggest percentage gainer on the S&P 500 in 2016, and its rival Advanced Micro Devices Inc., at least temporarily. Both companies have noted in their quarterly filings that cryptocurrency miners are a key source of demand for their graphic chips. Sales of chips to cryptocurrency sources represented 6.7% of Nvidia’s fiscal second-quarter revenue of $2.23 billion.”
  • Then there are those seeking to create an ETF in bitcoins (regulators haven’t agreed so far). If one does get through, there is quite a bit of institutional capital waiting.
  • Stay tuned.

Markets / Economy

WSJ – Central Banks Pull Back as Global Growth Picture Brightens – Josh Zumbrum 10/8

  • “Following the financial crisis from 2007-2009, the world’s big central banks had been net buyers of financial assets in global markets, expanding their portfolios of government bonds, mortgage debt and corporate securities by 1% to 3% of global economic output per year for much of the past six years.”
  • “Now that’s changing. The Bank of England announced in February it would mostly end its bond purchases, the Fed stopped buying bonds at the end of 2014 and announced in September it would move ahead with a plan to gradually shrink its holdings, and the European Central Bank is expected to announce at the end of October it will slow its pace of purchases.”
  • “All told, net purchases are on track to drop to 2.4% of global GDP by the end of this year, 0.8% of global GDP at the end of next year, and by mid-2019 the central banks of advanced economies will be shrinking, according to estimates by the Institute of International Finance, a Washington, D.C.-based organization which represents the global financial industry.”
  • “Interest rates are ticking up as well, another form of more restrictive monetary policy. The Federal Reserve has raised interest rates four times since 2015 and is expected to do so again in December. The Bank of Canada raised rates in July and September and could move again this year. Meantime the Reserve Bank of Australia and Bank of Korea are laying the groundwork for higher rates next year.”

Real Estate

CoStar – Washington Prime Turning Over Pair of Malls to Lenders; Will Buyback One – Mark Heschmeyer 10/5

  • “Washington Prime Group Inc. continued its portfolio re-construction agreeing to turn two malls over to lenders but with plans to buyback one of them. It also sold an additional mall and repaid the debt on a fourth.”
  • “Washington Prime agreed to transfer the Southern Hills Mall in Sioux City, IA, to the lender. Currently encumbered with the $99.7 million mortgage loan, it is currently anticipated that a wholly-owned affiliate of Washington Prime Group will repurchase the 571,465-square-foot property from the lender for $55 million or about $96/square foot. Washington Prime will recognize a $45 million in gain on debt extinguishment.
  • “The debt yield on the current mortgage loan is approximately 7.5% with a yield on the anticipated purchase of approximately 13.5%. The transaction is expected to close this month, subject to due diligence and customary closing conditions, the company said.”
  • “In note discussing the deal, analysts at Morgan Stanley Research said, ‘We agree that it a compelling way to reduce debt loads, but we wonder if the CMBS market will remain a viable lending alternative for lower productivity malls if it ultimately results in a ‘heads I win, tails you lose’ outcome in favor of the borrower.'”

Tech

Economist – Tech giants are building their own undersea fiber-optic networks 10/7

  • “On September 21st Microsoft and Facebook announced the completion of a 6,600km (4,100-mile) cable stretching from Virginia Beach, Virginia, to Bilbao, Spain. Dubbed Marea, Spanish for ‘tide’, the bundle of eight fiber-optic threads, roughly the size of a garden hose, is the highest-capacity connection across the Atlantic Ocean. It is capable of transferring 160 terabits of data every second, the equivalent of more than 5,000 high-resolution movies.”
  • “Such ultra-fast fiber networks are needed to keep up with the torrent of data flowing around the world. In 2016 international bandwidth usage reached 3,544 terabits per second, roughly double the figure in 2014. Firms such as Google, Facebook and Microsoft used to lease all of their international bandwidth from carriers such as BT or AT&T. Now they need so much network capacity to synchronize data across their networks of data centers around the world that it makes more sense to lay their own dedicated pipes.”
  • “This has led to a boom in new undersea cable systems. The Submarine Telecoms Forum, an industry body, reckons that 100,000km of submarine cable was laid in 2016, up from just 16,000km in 2015. TeleGeography, a market-research firm, predicts that $9.2bn will be spent on such cable projects between 2016 and 2018, five times as much as in the previous three years.”

Canada

WSJ – Daily Shot: Scotiabank – Home Price Indices – Repeat Sales 10/9

WSJ – Daily Shot: Scotiabank – Canadian Household Debt and Balance Sheets 10/9

WSJ – Daily Shot: Scotiabank – Canadian Home Equity & RE Assets 10/9

September 29, 2017

Perspective

NYT – Why Aren’t Paychecks Growing? A Burger-Joint Clause Offers a Clue – Rachel Abrams 9/27

  • “As economists try to understand why wages have stagnated across the country’s economy, they are examining the cheap labor part of the equation closely. A few have zeroed in on an obscure clause buried in many fast-food franchise agreements as a possible contributor to the problem.”
  • “Some of fast-food’s biggest names, including Burger King, Carl’s Jr., Pizza Hut and, until recently, McDonald’s, prohibited franchisees from hiring workers away from one another, preventing, for example, one Pizza Hut from hiring employees from another.”
  • “The restrictions do not appear in a contract that employees sign, or even see. They are typically included in a paragraph buried in lengthy contracts that owners of fast-food outlets sign with corporate headquarters.”
  • “Yet the provisions can keep employees tied to one spot, unable to switch jobs or negotiate higher pay. A lack of worker mobility has long been viewed as contributing to wage stagnation because switching jobs is one of the most reliable ways to get a raise.”
  • “Defenders of the practice argue that the restaurants spend time and money training workers and want to protect their investment. But two lawsuits, filed this year against McDonald’s and Carl’s Jr.’s parent company, CKE Restaurants Holdings, contend that such no-hire rules violate antitrust and labor laws.”
  • “The no-hire rules affect more than 70,000 restaurants — or more than a quarter of the fast-food outlets in the United States — according to Alan B. Krueger, an economist at Princeton University and a chairman of the Council of Economic Advisers in the Obama administration who examined agreements for 40 of the nation’s largest fast-food companies.”
  • “The provisions, he said, were ‘ubiquitous’ among the companies and appeared to exist mainly to limit both competition and turnover, which can keep labor costs low.”
  • “The restrictions are different from what are known as noncompete agreements — clauses in employee contracts that keep an employee from jumping to a rival. Such agreements are typically described as a means of preventing employees from bringing trade secrets to a competitor.”
  • “’I think it’s very hard to make the argument that noncompetitive agreements are necessary for low-educated, low-wage workers because they have trade secrets,’ Professor Krueger said. ‘This practice does have the potential to restrict competition and significantly influence pay.’”

Worthy Insights / Opinion Pieces / Advice

FT – Uber: the triumph of wallet over spirit – Robert Shrimsley 9/27

  • “I am quietly pleased London has taken a stand because, frankly, I wasn’t going to…”
  • “Free markets are a general good but they need someone looking beyond instant gratification to the wider consequences because the bottom line is consumers are like children. We need to be told that convenience is not the only issue. We need to be told to eat our greens.”

NYT – With Tax Cuts on the Table, Once-Mighty Deficit Hawks Hardly Chirp – Thomas Kaplan 9/28

Economist – How China is battling ever more intensely in world markets 9/23

Economist – How the use of antibiotics in poultry farming changed the way America eats 9/21

Markets / Economy

Bloomberg Businessweek – Midsize U.S. Sedan Demand Stalls Out to Lowest on Record – Anne Riley Moffat 9/27

  • “Only about one in 10 new cars sold in the U.S. is a midsize sedan, a sharp decline for the best-selling vehicle segment in 20 of the last 27 years, according to data from car-shopping website Edmunds.”

Real Estate

Fortune – The U.S. Housing Market Is Getting Squeezed. See Where Prices Are Spiking the Highest – Nicolas Rapp and Brian O’Keefe 9/15

WSJ – Blame Canada? Toronto, Vancouver Top Housing  Bubble Risks – Brian Blackstone 9/28

  • “Blame Canada?”
  • “It isn’t just the tune made famous by the South Park movie. It may become a motto among economists if frothy housing values around the world turn into a destabilizing bubble.”
  • “UBS published its latest global real estate ‘bubble index’ on Thursday, listing the major cities most at risk of housing bubbles. Canada took two of the top four spots, with Toronto on top and Vancouver at number four, and Northern Europe’s Munich and Stockholm sandwiched between.”
  • “U.S. cities featured pretty highly, with San Francisco and Los Angeles in ‘overvalued,’ but not bubble territory. New York was deemed fairly valued, and Chicago was the only city in the 20 listed that was undervalued.”
  • “UBS lists Boston’s real-estate market as fair-valued. Its uses sub-indexes such as price-to-income and mortgage-to-gross domestic product ratios to construct an overall index. Index readings above 1.5 are in bubble territory and the overvaluation scale slides down from there.”
  • “UBS noted that Toronto and Vancouver weren’t ‘dragged down’ by the global financial crisis, as a weaker Canadian dollar cushioned the blow. ‘Overly loose monetary policy, for too long, in addition to buoyant foreign demand, unmoored their housing markets from economic fundamentals—and both markets are now in bubble risk territory.’”
  • “’A strengthening Canadian dollar and further interest rate hikes would end the party,’ the report added.”
  • “In the U.S., housing prices in cities are still below their 2008 peak in inflation-adjusted terms, UBS said, except for San Francisco which ‘shows signs of overvaluation but no bubble risk, given its strong economic fundamentals amid the astonishing boom of tech companies.’”
  • “Turning to Europe, UBS said that ‘improving economic sentiment, partly accompanied by robust income growth in the key cities, has conspired with excessively low borrowing rates to spur vigorous demand for urban housing.’”
  • “In the Asia-Pacific region, Tokyo shows ‘moderate signs of overheating’ since the Bank of Japan launched its quantitative easing program in 2013, while residential prices in Hong Kong reached all-time highs mid-year ‘thanks to insatiable investor demand and speculative price expectations.’”

Finance

WSJ – Daily Shot: Danske Bank – S&P 500 Volatility 9/28

  • “For the first time since 2005, there hasn’t been a 2% daily move in the S&P 500.”

WSJ – Daily Shot: Reformed Broker – S&P 500 Maximum Drawdowns 9/28

China

Economist – China’s demographic divisions are getting deeper 9/21

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.”

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 17, 2017

Perspective

Bloomberg – Italy’s Poor Almost Triple in a Decade Amid Economic Slumps – Lorenzo Totaro and Giovanni Salzano 7/13

Markets / Economy

WSJ – Daily Shot: CBOT Soft Read Winter Wheat Futures 7/13

  • Things aren’t as bad as they seemed to be…

Real Estate

WSJ – Daily Shot: Real Housing Prices US v Canada 1975-2016 7/14

South America

FT – Venezuela’s crisis drains its foreign reserves – Gideon Long 7/14

  • “Venezuela’s foreign reserves have dropped below $10bn for the first time in 15 years as chronic mismanagement, corruption and subdued oil prices continue to batter what used to be the wealthiest country in South America.”
  • “The reserves stood at $9.983bn, according to figures published on Friday from the central bank, representing a 77% decrease since January 2009 when they hit a peak of $43bn.”
  • “…the fall in the reserves is likely to rekindle fears that Venezuela might default on its debt obligations this year. The state and its oil company PDVSA are due to make capital and interest repayments of $3.7bn in the fourth quarter.”
  • “Over the longer term, Venezuela also owes money to Russia, China, the Latin American development bank CAF and to companies that have taken it to court over broken promises and expropriation of assets.”
  • “Francisco Rodríguez, chief economist at Torino Capital in New York, says the Maduro government could raise about $14.5bn through a variety of other measures, however.” 
  • “It could recall loans made to small Caribbean and Central American nations during the Chávez years. Of these, its biggest debtor is Nicaragua, which owes about $2.9bn.”

July 7, 2017

If you were to read only one thing…

FT – Japan suffers record decline in population – Robin Harding 7/5

  • “Japan’s native population fell by a record amount in 2016, but a jump in the number of foreign residents limited the overall annual decline.”
  • “According to the Internal Affairs Ministry, the number of Japanese fell 308,084 to 125.6m, reflecting decades of low birth rates and population ageing.”
  • “That was offset by a 7% increase in the foreign resident population to 2.3m — a rise of 148,959 people — as increasing labor shortages led to inflows of students and guest workers.”
  • “The figures reflect a fundamental question for Japan in the years ahead: whether it will allow immigration to sustain its overall population or accept a decline to preserve ethnic homogeneity.”
  • “For the first time since the survey began in 1979, the number of annual births fell below 1m, with 981,202 babies born in 2016. Deaths reached a high of 1.3m.”
  • “According to projections from the National Institute of Population and Social Security Research, the pace of decline will rise every year until 2045, by which time Japan will be losing about 900,000 residents a year — equivalent to a city the size of Austin, Texas.”
  • “Given many years of low birth rates, there is no quick way to reverse that decline, so the only alternative is immigration.”
  • “Japan’s population continued to shift towards big cities and Tokyo in particular. The population of the capital rose by 115,000 to 13.5m, an increase of 0.9%, while the surrounding prefectures of Saitama, Chiba and Kanagawa also gained residents.”
  • “But population decline accelerated in isolated rural areas, with Aomori, Akita and Kochi prefectures all losing more than 1% of their residents.”

Perspective

WSJ – Daily Shot: BAML – S&P 500 Market Ownership – Vanguard 7/6

FT – US raises spectre of military action to deal with North Korea – Bryan Harris, Demetri Sevastopulo, and Katrina Manson 7/5

  • “Self-restraint, which is a choice, is all that separates armistice and war. As this alliance missile live-fire shows, we are able to change our choice when so ordered by our alliance national leaders.”

Bloomberg – A Quarter of Euro Area’s Unemployed Resides in Spain – Jana Randow 7/4

Worthy Insights / Opinion Pieces / Advice

WSJ – CEO-Worker Pay Ratio Generates Outrage-And Some Insight – Stephen Wilmot 7/6

FT – Lex in-depth: Together in electric dreams – Tom Braithwaite 7/6

Markets / Economy

WSJ – Daily Shot: Haver Analytics & Renaissance Macro Research – American Auto Preference 7/6

Real Estate

WSJ – Daily Shot: Statistics Canada – Real Estate Transaction Costs as Percentage of GDP 7/6

WSJ – Condo Supply Swells in Manhattan – Josh Barbanel 7/6

China

WSJ – Reality Bytes: A Highflying Tech Entrepreneur Crashes Back to Earth – Li Yuan 7/6

  • “Rather than being a shining star of visionary entrepreneurship, LeEco is turning into a cautionary tale of the hype surrounding China tech. The lesson for investors: When it comes to Chinese tech companies, the rules of economics still apply.”

Europe

WSJ – Italy Formally Takes Control of Monte dei Paschi – Deborah Ball 7/5

  • “The Italian government took control of Banca Monte dei Paschi di Siena on Tuesday, injecting €5.4 billion ($6.1 billion) into the troubled lender as part of a broad plan to bring one of Europe’s weakest banks back to health.”
  • “The state recapitalization is the centerpiece of a deep overhaul of Monte dei Paschi, Italy’s fourth-largest lender, that will also include the transfer of the bank’s €28.6 billion in bad loans to a special vehicle, a cap on remuneration of its top executives and deep cuts in personnel.”
  • “The bank, which is the world’s oldest, gave details of its plan Wednesday in a presentation to analysts, which include the closure of 600 branches and 5,500 job cuts, bringing its total job count to about 20,000 by 2021.”
  • “Under pressure from the European Central Bank, which is pushing European banks to address the problem of bad loans, Italian banks have stepped up efforts to sell and liquidate sour debt, with tens of billions of such loans earmarked for disposal.”
  • “Nonetheless, the Italian banking system is among the weakest in Europe, with about €200 billion in bad loans. The banks have suffered from a combination of poor management, low interest rates, poor profitability and economic growth that has been the weakest in the region for years.”
  • “Italy’s banking woes remain a serious impediment to a stronger recovery in the country, which isn’t enjoying the rebound other European countries have seen. Italy’s economy is expected to grow about 1% this year, slightly more than half the rate for the eurozone as a whole.”