Tag: China

October 13, 2017

Perspective

NYT – Rohingya Recount Atrocities: ‘They Threw My Baby Into a Fire’ – Jeffrey Gettleman 10/11

  • Deeply disturbing.

WSJ – Daily Shot: OECD – Global Obesity Rates (2015) 10/12

FT – The 30-second ad has had its 15 minutes of fame – Shannon Bond 10/11

  • “The 30-second television ad has been dethroned. As US television networks face growing digital competition for marketing dollars and viewers’ attention, they are selling shorter ads. The result? Thirty-second spots, long the industry standard, now make up fewer than half of all US TV commercials.”

Worthy Insights / Opinion Pieces / Advice

WSJ – Say Goodbye to the China Bid – Aaron Back 10/12

  • “China’s seemingly insatiable demand for foreign assets has driven up prices for everything from U.S. Treasury bonds to global companies to luxury real estate. Now, a combination of market forces and capital controls are choking off the flow of Chinese cash. Asset markets around the world will have to adjust.”
  • “As Chinese exports boomed starting in the early 2000s and foreign investment flooded into the country, the central bank recycled these inflows into foreign government bonds, mostly Treasurys, to keep the yuan from rising. The buying persisted for over a decade, driving bond prices up and driving yields down globally.”
  • “The form of China’s foreign buying shifted in 2014, when the U.S. began exiting quantitative easing and China’s growth slowed. Ordinary Chinese feared that the yuan, which had steadily risen for years, would fall as growth slowed. Both individuals and companies rushed to get money out of China, snapping up trophy assets and luxury real estate around the world.”
  • “The China bid, or at least the expectation of one, sent prices of luxury properties soaring, fueled real estate bubbles from Vancouver to Sydney and pushed up prices of companies seen as desirable for Chinese buyers.”
  • “Alarmed by the outflow, Beijing began to tighten capital controls in 2015 and 2016, but the deal-making persisted until this year when the government cracked down on money transfers by individuals and discouraged companies from pursuing ‘irrational’ deals abroad. So far this year, outbound mergers and acquisitions by Chinese companies are down 27% from the same period a year earlier, according to Dealogic.”
  • “Now, pretty much the only thing the Chinese government encourages its companies to buy abroad are high-tech companies such as computer chip makers. But these strategic assets are precisely the kind that Western governments increasingly don’t want to fall into Chinese hands.”
  • “In real estate there is no way to say for sure how much Chinese buying drove up prices, but governments from Canada to Australia have moved to control foreign buying to rein in property bubbles.”
  • “Nor is China set to return as a big buyer of U.S. Treasurys. Indeed, if the Federal Reserve keeps tightening, China could be a seller of bonds as it fends off depreciation pressure on the yuan.”
  • “In the years ahead, financial markets around the world will have to live without the ever-present China bid. Whether China was a savvy investor or the dumb money, asset prices will likely be lower.”

WSJ – China’s Next Five Years – Squeezing the People to Feed the State – Nathaniel Taplin 10/11

  • “China achieved its economic miracle by unleashing the entrepreneurial private sector. With President Xi Jinping poised to further consolidate power at the Communist Party’s twice-a-decade leadership shuffle kicking off Oct. 18, the narrative of the next five years is becoming clear.”
  • “The state is pushing back.”
  • “The logic is straightforward. Nominally communist China relies on its vibrant private sector for growth, but state-owned companies are indispensable tools for political patronage, social control and economic policy. Any financial rot in the state sector could weigh on the economy and weaken the Communist Party’s grip.”
  • “With private business already commanding around 70% of the economy, Mr. Xi and his allies have decided to strengthen key state-controlled companies by boosting their market power and easing their debt burdens.”
  • “For investors, the implications are significant: higher global goods prices because state-owned companies are notoriously inefficient, and a smaller chance of the long-feared Chinese debt crisis. Corporate debt, which is largely in the state-owned sector, ticked down as a percentage of GDP in the second quarter, according to J.P. Morgan—the first decline since 2011. The trade-off is slower Chinese growth. Chinese banks, whose shares are currently on a tear, will need to keep subsidizing bloated state enterprises. And those enterprises’ need for a deep pool of capital inside China means a free-floating yuan will remain a distant dream.”
  • “For investors, the tilt back toward the state means that innovative privately owned tech and consumer companies may continue to outperform—but probably less so than in the past. Hulking state-owned titans, enjoying newly privileged market positions, may reward investors more reliably: The state-dominated Shanghai stock market has roundly outperformed the technology-and-consumer-focused Shenzhen market this year.”
  • “Deng Xiaoping, the grandfather of China’s economic reforms, famously said that it was acceptable to let ‘some people get rich first.’ The people are far richer than they were three decades ago. Now it’s the state’s turn once again.”

Forbes – How Blockchain Can Stamp Out China’s Fake Diplomas 10/8

NYT – We’re About to Fall Behind the Great Depression – David Leonhardt 10/12

Markets / Economy

WSJ – Daily Shot: Moody’s – U.S. States General Obligation Debt Ratings 10/12

Real Estate

FT – Airbnb teams up with developer to launch branded apartments – Leslie Hook 10/12

  • “Airbnb is stepping up its challenge to traditional hotel operators, launching branded, purpose-built apartments in Florida in a tie-up with a US real estate developer.”
  • “The partnership with Newgard Development Group marks the first time the San Francisco-based home-sharing group has worked with a property developer. It underscores how Airbnb is expanding beyond simply booking accommodation, its core service that has already hit hotel operators in cities across the world.”
  • “The 300-unit rental complex in Kissimmee, Florida, near Orlando, will be built and owned by Newgard but carry a new brand: ‘Niido powered by Airbnb’.”
  • “Harvey Hernandez, chief executive of Miami-based Newgard, said the company planned to build 2,000 Airbnb-branded units in the next two years. Tenants who rent the apartments can choose to sublet them through Airbnb for up to 180 days a year.”
  • “The Kissimmee apartment building, due to open early next year, includes features such as keyless doors and secure storage that will make it easier for long-term tenants to rent out their rooms when they are away. Through an app, tenant hosts can manage their Airbnb guests’ stay and even co-ordinate services such as changing bedsheets.”
  • “It will have human touches as well. A ‘master host’ will be on site, and all apartments will have a mandatory cleaning service, in the style of a serviced apartment.”
  • “’The demographic that we are targeting are travelling more than ever before,’ said Mr Hernandez. ‘So when that property is empty, they can be making money with it.’”
  • “Newgard, Airbnb and the tenant will all derive revenue from the short-term rentals, with Newgard taking 25% of the nightly room rate, Airbnb taking 3% (the same commission it charges hosts anywhere), and the tenant receiving the remainder.”
  • “Marriott operates serviced apartments whereby it does not own the property but the building carries its branding and Marriott provides hospitality services. Unlike Marriott, Airbnb will not operate the hospitality services and nor is it charging Newgard for the use of its brand.”

Bloomberg – Kushners’ Manhattan Tower on Track for Its Worst Year Since 2011 – Caleb Melby 10/12

Energy

FT – Why the US east coast imports oil despite shale boom – Gregory Meyer 10/11

  • “The US has been shipping its shale oil riches to different parts of the world, including Canada and India, inspiring White House officials to muse about American ‘energy dominance’. But one place that is buying very little of this crude is the officials’ backyard.”
  • “Last week as the US reported a record 2m barrels a day in crude oil exports, refineries located up the highway from Washington on the east coast imported about 900,000 b/d, mainly from Africa.”
  • “A big reason is the Jones Act, a 97-year-old US law that requires all ships starting and ending their voyages on US coasts to be American-flagged, built and crewed.”
  • “What animates critics in the oil market about the Jones Act is that it increases the cost of shipping crude from the Gulf coast to the east coast above the rate charged by foreign-flagged carriers. That helps incentivize exports from Texas oilfields and imports by refiners in the east. The reliance on shipping reflects the fact that no crude oil pipelines link the oilfields of the central US to the east coast.”
  • “’It’s basically a constraint on the efficient operation of the oil market,’ says Sandy Fielden, director of research for commodities and energy at Morningstar.”
  • “US lawmakers liberalized trade in crude oil in December 2015, allowing unfettered exports after years of tight restrictions for every destination but Canada. They let the Jones Act stand, though they gave some refiners temporary tax relief related to oil transport costs.”
  • “The effects are plain to see. In 2015, tankers laden with crude oil from the US gulf coast delivered an average of 50,000 b/d to ports on the US east coast, according to ClipperData, a vessel tracking service. The volumes nearly halved in 2016 and have halved again this year, the data show.”
  • “Ending the export ban has caused shipments to soar to countries previously blocked from buying US oil, including long hauls to Asia. Crude oil exports to countries other than Canada are averaging about 325,000 b/d this year, ClipperData’s records show, more than treble the levels of 2015.”
  • “Meanwhile, US east coast refineries near Philadelphia and New York have been importing nearly 1m b/d from countries such as Nigeria and Angola, about 50% higher than two years ago.”
  • “The increased imports to the east coast come despite falling rates to hire a Jones Act tanker as the industry struggles with a surplus of ships built before the export ban was lifted. The US fleet of Jones Act tankers and tugboat-barge units totals 94 vessels, according to Overseas Shipholding Group, one of the biggest operators in the sector.”
  • “Sam Norton, chief executive of OSG, estimates the cost of hiring one for crude service is about three to four times higher than using a foreign-flagged vessel. Some shipping consultants say it is even higher.”
  • “The Jones Act is unlikely to abolished, despite the longstanding efforts of politicians such as Senator John McCain of Arizona.”
  • “’Since people have been living with it for so long, it’s difficult to say what it would be like if they changed it or if it were repealed,’ says Mr Fielden of Morningstar.”

Environment / Science

NYT – 10 Hurricanes in 10 Weeks: With Ophelia, a 124-Year-Old Record is Matched – Maggie Astor 10/11

  • “With Tropical Storm Ophelia’s transition to Hurricane Ophelia on Wednesday, 2017 became the first year in more than a century — and only the fourth on record — in which 10 Atlantic storms in a row reached hurricane strength.”

China

FT – Wanda’s Wang Jianlin dethroned from top of China rich list – Tom Hancock 10/11

WSJ – Six Reasons Why China Matters – Justin Lahart 10/11

NYT – China to Debtors: Pay Up or Be Shamed – Keith Bradsher and Ailin Tang 10/11

  • “Troubled by huge debts run up by big state companies and politically connected local governments, China is taking steps instead to go after the little guys.”
  • “Chinese officials have ordered provincial governments to establish online platforms naming those who do not pay their obligations, official media reported this week. The lists should be maintained by local news organizations as well as courts and regulators, the report said, with an aim of exposing deadbeats and pressuring them to pay up.”
  • “The new effort is unlikely to affect big borrowers, like major state-owned companies and other big firms, whose debts are almost never called in. But it could intensify and centralize officials’ broader moves to assign ratings to individuals based on creditworthiness and other criteria; practices like credit scoring are only just now taking off in the country.”

Japan

WSJ – Daily Shot: BOJ asset purchases and pace of purchase 10/12

  • “The BoJ is quietly slowing its securities purchases (as part of ‘yield targeting’).”

October 12, 2017

Perspective

Business Insider – Trump’s net approval rating has dropped dramatically in every state – Allan Smith 10/10

Brookings – White, still: The American upper middle class – Richard Reeves and Nathan Joo 10/4

Economist – A new study details the wealth hidden in tax havens 10/7

  • “…A new study by Annette Alstadsaeter, Niels Johannesen and Gabriel Zucman, three economists, (using Bank for International Settlements data) concludes that tax havens hoard wealth equivalent to about 10% of global GDP. This average masks big variations. Russian assets worth 50% of GDP are held offshore; countries such as Venezuela, Saudi Arabia and the United Arab Emirates climb into the 60-70% range. Britain and continental Europe come in at 15%, but Scandinavia at only a few per cent.”
  • “One conclusion is that high tax rates, like those in Denmark or Sweden, do not drive people offshore. Rather, higher offshore wealth is correlated with factors such as political and economic instability and an abundance of natural resources.”
  • “Accounting for offshore holdings suggests wealth inequality is even greater than was thought. In Britain, France, and Spain the top 0.01% of households stash 30-40% of their wealth in tax havens. In Russia, most of it goes there. In America, the share of wealth held by the richest 0.01% is as high today as in early 20th-century Europe. Including offshore data increases the wealth share of the super-rich.”
  • “Yet plenty of data are still missing. A few big centers, including Panama and Singapore, still do not disclose these statistics. The BIS data also cover only bank deposits, not the securities in which most offshore wealth is held. Researchers made estimates to plug the gap, but their figures are likely to be conservative.”

Worthy Insights / Opinion Pieces / Advice

NYT – How Israel Caught Russian Hackers Scouring the World for U.S. Secrets – Nicole Perlroth and Scott Shane 10/10

Economist – The bull market in everything – Leaders 10/7

Economist – A deathly silence: After the massacre in Las Vegas, nothing is set to change – Leaders 10/5

Economist – Politicians choosing voters: The Supreme Court ponders whether gerrymandering has gone too far 10/7

Economist – Chiang Kai-shek’s former homes are open to tourists 10/5

Markets / Economy

Economist – From Uber to kinder 10/7

Economist – American public pensions suffer from a gaping hole 10/5

  • “Schools in Pennsylvania ought to be celebrating. The state gave them a $125m budget increase for 2017-18—enough for plenty of extra books and equipment. But John Callahan of the Pennsylvania School Boards Association says all the increase and more will be eaten up by pension costs, which will rise by $164m this year. The same happened in each of the previous five years; cumulatively the shortfall adds up to $586m. The pupil-teacher ratio is higher than in 2010. Nearly 85% of the state’s school boards said pensions were their biggest source of budget pressure.”
  • “A similar squeeze is happening all over America. Sarah Anzia, at the University of California, Berkeley, examined 219 cities between 2005 and 2014 and found that the mean increase in their real pension costs was 69%; higher pension costs in those cities were associated with falls in public-sector employment and capital spending.”
  • “The problem is likely to get worse. Moody’s, a rating agency, puts the total shortfall of American public-sector pension plans at around $4trn. That gap does not have to be closed at once, but it does mean that contributions by employers (and hence taxpayers) will increase even more than they already have (see chart).”
  • “Higher costs are the result of improved longevity, poor investment returns and inadequate past contributions.”
  • As to making plans…
  • “Experts can differ, it seems. But small changes in assumptions can make a huge difference to the amount employers need to contribute. According to the National Association of State Retirement Administrators, cutting the return assumption by a quarter of a percentage point increases the required contribution rate (as a proportion of payroll) by two to three points.”
  • “In consequence, it is in no one’s interest to make more realistic assumptions about future returns. Workers (and their unions) fear it might generate calls for their benefits to be cut; states worry it would require them to raise taxes. Don Boyd, the director of fiscal studies at the Rockefeller Institute of Government, a think-tank, reckons that with a 5% assumed rate of return, states would have to stump up an extra $120bn a year just to tread water—i.e., to fund their pensions without making any progress on closing the deficit. So the game of ‘extend and pretend’ continues.”
  • “As years go by, voters and legislators across the country will have to make a trade-off. They can pay more taxes and cut services; or they can reduce the benefits they pay people who teach their children, police their streets and rescue them from fires. There will be no easy answers.”

Real Estate

WSJ – Daily Shot: John Burns RE Consulting – Home Refinancing 10/11

Health / Medicine

FT – Global childhood obesity rises 10-fold in 40 years – Clive Cookson 10/10

  • “The number of obese children and teenagers across the world has increased 10-fold over the past four decades and is about to overtake the number who are underweight, according to the most extensive analysis of body weight ever undertaken.”
  • “The study, led by Imperial College London and the World Health Organization, used data on 31.5m children and adolescents worldwide to estimate trends in body mass index (BMI) from 1975 to 2016. The results are published in the Lancet.” 
  • “Over this period the number of obese girls, aged 5 to 19, rose from 5m to 50m, while the total for boys increased from 6m to 74m.”
  • “The world’s highest childhood obesity levels are in the Pacific islands of Polynesia and Micronesia. Nauru has the highest prevalence for girls and the Cook Islands for boys: both above 33%.”
  • “Among wealthy countries, the US has the highest obesity rates for girls and boys of about 20%. Levels in most of western Europe are in the 7% to 10% range.” 
  • “A further 213m children are overweight but not sufficiently so to meet the WHO’s obesity criteria, which vary by age. Forty years ago, 0.8% of the world’s children were obese; now the prevalence is close to 7%.” 
  • “The study also looked at adult obesity, which increased from 100m people in 1975 to 671m in 2016. A further 1.3bn adults were overweight (with a BMI above 25) but below the threshold for obesity (BMI above 30).” 
  • “But the authors are most concerned about the findings about childhood obesity, because of their implications for public health many decades into the future.”

Construction

WSJ – Daily Shot: NFIB Labor Quality 10/10

  • “Anecdotal evidence suggests that in some areas of the country, finding workers who can pass a drug test has been challenging.”

WSJ – Daily Shot: John Burns RE Consulting – Builder Labor Shortages 10/11

  • “Skilled (and drug-free) worker shortages in construction are especially acute.”

  • This will only get tighter in the continental U.S. as natural disasters continue to rack up, resulting in acute demand for labor in the affected areas. Harvey, Irma, Maria, Nate, and now wildfires in Northern California. Of course, this will have effects on the neighboring regional labor pools.

Shipping

Economist – How protectionism sank America’s entire merchant fleet 10/5

  • “In April 1956 the world’s first container ship—the Ideal X—set sail from New Jersey. A year later in Seattle the world’s first commercially successful airliner, Boeing’s 707, made its maiden flight. Both developments slashed the cost of moving cargo and people. Boeing still makes half the world’s airliners. But America’s shipping fleet, 17% of the global total in 1960, accounts for just 0.4% today.”
  • “Blame a 1920 law known as the Jones Act, which decrees that trade between domestic ports be carried by American-flagged and -built ships, at least 75% owned and crewed by American citizens. After Hurricane Irma, a shortage of Jones-Act ships led President Donald Trump on September 28th to waive the rules for ten days to resupply Puerto Rico. This fueled calls to repeal the law completely.”
  • Like most forms of protectionism, the Jones Act hits consumers hard. A lack of foreign competition drives up the cost of coastal transport. Building a cargo ship in America can cost five times as much as in China or Korea, says Basil Karatzas, a shipping consultant. And the cost of operating an American-flagged and -crewed vessel is double that of foreign ones, reckons America’s Department of Transportation.”
  • “Inflated sea-freight rates push most cargo onto lorries, trains and aircraft, even though these are pricier and produce up to 145 times as many carbon emissions. So whereas 40% of Europe’s domestic freight goes by sea, just 2% does in America. Lacking overland routes, Alaska, Guam, Hawaii and Puerto Rico are hardest hit. Hawaiian cattle ranchers, for instance, regularly fly their animals to mainland America. A recent report by the Government Development Bank for Puerto Rico found that the Jones Act inflated transport costs for imports to twice the level of nearby islands.”
  • “Jones-Act shipowners retort that the rules are to help producers, not consumers. Rail firms lobbied for the 1920 law, out of fear that an excess of foreign ships from the first world war was flooding the market. National security was also cited. German submarine warfare, it was argued, showed the need for a merchant fleet built and crewed by Americans. But the law has virtually wiped out American shipping. Between 2000 and 2016 the fleet of private-sector Jones-Act ships fell from 193 to 91. Britain binned its Jones-Act equivalent in 1849. Its fleet today has over three times the tonnage of America’s. Marc Levinson, an economic historian (and former journalist at The Economist ) notes that the laws also made American container lines less able to compete on international routes. Drawn by profits at home they underinvested in their foreign operations, and fell behind their foreign rivals because they lacked the same scale.”
  • “Recognizing the harm to their domestic fleets, countries from Australia to China are loosening the rules protecting their fleets. Not America.”

Africa

Economist – The birthplaces of African leaders receive an awful lot of aid 10/7

  • “Scholars have long had a hunch that Chinese aid could be more easily manipulated than the Western sort, which often comes with strings attached. A Chinese white paper in 2014 stated that the government would not impose any ‘political conditions’ on countries asking for help. The commerce ministry, China’s lead aid agency, says most projects are initiated by recipient states. This approach makes aid more vulnerable to misuse by local leaders, say critics.”
  • “In a working paper, the pundits show that China’s official transfers to a leader’s birth region nearly triple after he or she assumes power. Even when using a stricter definition of aid provided by the OECD, a club of mostly rich countries, an increase of 75% was found. They got similar results when looking at the birthplaces of presidential spouses. Crucially, they found no such effect with aid doled out by the World Bank, their benchmark for Western assistance. ‘We believe Chinese aid is special,’ says Andreas Fuchs, a co-author of the study.”
  • “China’s approach to aid has other side-effects. In a paper released earlier this year, Diego Hernandez, an economist, showed that China’s rise as a development financier has increased competition between donors. This, in turn, has strengthened recipients’ bargaining power, says Mr Hernandez. Traditional donors have responded by lowering conditionality, or the number of strings attached to aid. Using data from 1980 to 2013, he finds that African countries have received 15% fewer conditions from the World Bank for every 1% increase in Chinese aid.”

October 11, 2017

Perspective

WSJ – Daily Shot: Spanish Empire at its Peak 10/10

  • “Since Monday was Columbus day, here is the size of the Spanish Empire at its peak (in 1790).”

WSJ – America’s Retailers Have a New Target Customer: The 26-Year-Old Millennial – Ellen Byron 10/9

VC – How Americans Differ by Age – Jeff Desjardins 10/10

Worthy Insights / Opinion Pieces / Advice

A Teachable Moment – How To Make $5,300 In Commissions on a $43,000 Retirement Account – Anthony Isola 10/9

  • If you are a teacher or have family or friends that are teachers, you should read this. Make sure you’re or they’re not getting fleeced.

NYT – The N.F.L Draft: A Study in Cockeyed Overconfidence – David Leonhardt 4/25/05

  • A worthwhile look at the research that Richard Thaler and Cade Massey did regarding overconfidence.

The Irrelevant Investor – The Price of Progress – Michael Batnick 10/10

  • “The economic machine that we’ve built in the United States has done extraordinary things and I can’t wait to see what we come up with in the future. But what do we do when progress leaves so many behind?”

Markets / Economy

NYT – China Hastens the World Toward an Electric-Car Future – Keith Bradsher 10/9

Economist – American entrepreneurs have not lost their mojo 10/10

  • “Business formation is down, but fast-growing startups are in high gear.”

Energy

FT – Saudi Arabia curbs oil exports to combat glut – Anjli Raval 10/9

  • “Saudi Arabia is allocating fewer barrels of crude for export next month and at a level below current demand, emphasizing the effort by global producers to reduce surplus inventories.”
  • “In a rare statement, the Ministry of Energy on Monday said contracted demand for Saudi crude for November was 7.7m barrels a day, but the kingdom has assigned just 7.2m b/d for export.”
  • “The disclosure of Saudi Arabia’s monthly allocations emphasizes a new focus on foreign sales, alongside production, that Riyadh deems vital to the effort by global producers to reduce surplus inventories.”
  • “’It is very interesting they are now trying to communicate to the market about exports,’ said Olivier Jakob at consultancy Petromatrix. ‘They have gone the extra step of putting out numbers on this, which is the first I’ve ever seen.’”

Finance

WSJ – Daily Shot: Hedge Fund Research – Hedge Fund Fees 10/10

WSJ – Daily Shot: Bitcoin 10/9

  • Bitcoin is rallying again.

WSJ – Daily Shot: Investing.com – Bitcoin Cash 10/10

  • “On the other hand, Bitcoin’s less fortunate twin called Bitcoin Cash has collapsed.”

India

FT – Modi’s pursuit of black money proves drag on India’s economy – Amy Kazmin 10/9

  • “For many Indians the powerful appeal of Narendra Modi, the prime minister, stemmed from his vows to tackle two issues of fierce public concern: the sluggish economy and entrenched corruption.”
  • “But India’s economy has faltered, with growth falling steadily since early 2016 to a three-year low of 5.7% in the second quarter of this year.”
  • “Now, some economists are suggesting Mr Modi’s two big goals are at odds, and that New Delhi’s zealous anti-corruption drive — which reached its apogee with a draconian cash ban — is sapping India’s economic momentum.”
  • “Though disruptive, demonetization failed to purge black money from the economy, because nearly 99 per cent of the cancelled bank notes were deposited or exchanged, rather than being furtively destroyed as forecast.”
  • “Now New Delhi is toughening its stance, with tax officials probing 1.8m individuals or businesses whose cash deposits after demonetization were out of sync with their past tax returns.”
  • “While the quest to unearth Indians’ illicit wealth remains politically popular, economists say it has come at a cost, souring business and consumer sentiment. It is considered one reason why private investment — which has driven past Indian booms — remains stubbornly flat.” 
  • “‘If you’ve got income tax authorities charged up and told to after black money, who is going to invest in a big way?’ said one economist who asked not to be identified given the issue’s sensitivity.”
  • “’The Chinese call this ‘the original sin’ problem,’ he added. ‘Every company has something buried in the past — a sin it has committed. If the government really wants to go after people, it can always find something.’”
  • “Demonetization severely disrupted the property market, previously a favorite parking place for black money and a big growth engine. Real estate prices and sales plunged and, though sales are picking up, there is a huge overhang of unsold inventory.”

Japan

NYT – Kobe Steel’s Falsified Data Is Another Blow to Japan’s Reputation – Jonathan Soble 10/10

  • “For decades, Japanese manufacturers of cars, aircraft and bullet trains have relied on Kobe Steel to provide raw materials for their products, making the steel maker a crucial, if largely invisible, pillar of the economy.”
  • “Now, Kobe Steel has acknowledged falsifying data about the quality of aluminum and copper it sold, setting off a scandal that is reverberating through Japan and beyond, and casting a new shadow over the country’s reputation for precision manufacturing, a mainstay of its economy.”
  • “Companies ranging from the automakers Toyota Motor and Honda Motor to aircraft companies like Boeing and Mitsubishi Heavy Industry said they were investigating the use of rolled aluminum and other materials from Kobe in their products. They also said they were trying to determine if substandard materials had been used in their products and, if so, whether they presented safety hazards.”
  • “Kobe Steel said on Sunday that employees at four of its factories had altered inspection certificates on aluminum and copper products from September 2016 to August this year. The changes, it said, made it look as if the products met manufacturing specifications required by customers — including for vital qualities like tensile strength — when they did not.”
  • “Kobe Steel added that it was examining other possible episodes of data falsification going back 10 years. It did not provide details about the size of the discrepancies it had discovered, making it difficult to immediately determine if they posed a safety threat.”
  • “Kobe Steel’s problem points to ‘a common organization issue,’ said Shin Ushijima, a lawyer who serves as president of the Japan Corporate Governance Network. He drew parallels between Kobe Steel and Takata and Mitsubishi, as well as with financial-reporting improprieties at Toshiba, which admitted to overstating profit in 2015.”
  • “’Boards aren’t doing their jobs,’ he said. ‘This isn’t an issue that can be solved by the president resigning. There needs to be wholesale change.’”
  • “He continued, ‘The Kobe Steel case is a test of whether we’ve learned anything from Toshiba and these other issues.’”

Mexico

FT – Mexicans hope earthquake will shake up corrupt system – Jude Webber 10/9

  • “There are disasters waiting to happen, says Eduardo Reinoso, a civil engineer who has studied compliance with building codes introduced after 1985. He blames not only corruption and incompetence but also a culture of impunity that has encouraged people to build or modify their homes without planning permission because of a belief they can get away with it.”
  • “As Gabriel Guerra, a former diplomat and government official, put it: ‘Our collective negligence and corruption is coming back to bite us where it hurts.’”

October 6, 2017

If you were to read only one thing…

NYT – Payday Lending Faces Tough New Restrictions by Consumer Agency 10/5

  • “A federal agency on Thursday imposed tough new restrictions on the so-called payday-lending industry, which churns out billions of dollars a year in high-interest loans to working-class and poor Americans.”
  • “The rules announced by the agency, the Consumer Financial Protection Bureau, clamp down on, and could largely eliminate, loans that are currently regulated by states and that critics say prey on the vulnerable by charging usurious fees and interest rates. The lenders argue that they provide financial lifelines to those in desperate need of short-term cash infusions.”
  • “The terms of a typical payday loan of $400 require that $460 be repaid two weeks later — the equivalent of an annual interest rate of more than 300%, far higher than what banks and credit cards charge for loans. Because most borrowers cannot repay their debts quickly, the loans are often rolled over, incurring more fees in the process.”
  • “Some 12 million people, many of whom lack other access to credit, take out the short-term loans each year, researchers estimate. Payday loans — so called because they are typically used to tide people over until their next paychecks — often entangle borrowers in hard-to-escape spirals of ever-growing debt, according to the consumer bureau.”
  • “The new rules limit how often, and how much, customers can borrow. The restrictions, which have been under development for more than three years, are fiercely opposed by those in the industry, who say the rules will force many of the nation’s nearly 18,000 payday lenders out of business.”
  • “Until now, payday lending has been regulated by states, with 15 already having made the loans effectively illegal. In more than 30 other states, though, the short-term loan market is thriving. The United States now has more payday loan stores than McDonald’s outlets. They make around $46 billion a year in loans, collecting $7 billion in fees.”
  • “The payday-lending rules do not require congressional approval. Congress could overturn the rules using the Congressional Review Act, which gives lawmakers 60 legislative days to nullify new regulations, but political analysts think that Republicans will struggle to get the votes needed to strike down the regulations.”
  • “Under the new rules, lenders will be allowed to make a single loan of up to $500 with few restrictions, but only to borrowers with no other outstanding payday loans. For larger or more frequent loans, lenders will have to follow a complex set of underwriting rules intended to ensure that customers have the means to repay what they borrow.”
  • “The restrictions would radically alter the short-term lending market. The number of loans made would likely fall at least 55%, according to the consumer agency’s projections.”
  • “That would push many small lending operations out of business, lenders say. The $37,000 annual profit generated by the average storefront lender would instead become a $28,000 loss, according to an economic study paid for by an industry trade association.”

Worthy Insights / Opinion Pieces / Advice

Bloomberg Businessweek – Fighting the Toxic Nightmare Next Door – Susan Berfield 9/28

  • “A radiation-riddled landfill in St. Louis, Trump’s EPA, and two moms who won’t let it go.”

NYT – Thoughts and Prayers and N.R.A. Funding – David Leonhardt, Ian Prasad Philbrick, and Stuart A. Thompson 10/4

FT – The price of paid news may not stay high – John Gapper 10/3

  • “Google could soon bundle information like a cable television company.”

FT – Lloyds and the HBOS time bomb – Jonathan Ford 10/4

  • “When Lloyds took over its rival bank in 2009, it also inherited the legacy of massive fraud. Its response? To dismiss the victims and any evidence of wrongdoing.”

Markets / Economy

Bloomberg Businessweek – Springsteen Tickets Hit $10,000, and Wall Street Gets Scalped – Laura J Keller, Eben Novy-Williams, Bob Van Voris, and Katherine Burton 9/25

Health / Medicine

Vox – I was skeptical that the anti-vaccine movement was gaining traction. Not anymore. – Julia Belluz 10/3

  • Texas K-12 nonmedical exemptions.

Entertainment

Bloomberg Businessweek – Hollywood Is Scrambling to Replace Chinese Funding – Anousha Sakoui 9/26

  • “In the past six months, Hollywood has seen film financing deals worth more than $1 billion unravel as Chinese investors and some hedge funds move away from funding movies.”

China

Bloomberg Businessweek – China Unleashes Its Farmers – Kevin Hamlin, Dexter Roberts, and Pi Xiaoqing 9/26

  • “To boost the earnings of China’s 230 million rural households, Beijing is rolling out reforms that allows farmers to profit from their land, even while barring private ownership.”

Europe

FT – Spain courts suspend planned Catalonia parliament session – Michael Stothard 10/5

  • “The Spanish courts have ordered the temporary suspension of a special session of Catalonia’s parliament scheduled for next Monday where regional officials were expected to vote on making a unilateral declaration of independence.”
  • “While the session may still happen in defiance of the courts, the move highlights how Madrid is doing everything in its power to prevent the region from making formal its promises to break away from Spain following Sunday’s referendum.”
  • “If independence is declared on Monday, Spanish prime minster Mariano Rajoy will likely be forced to resort to the so called ‘nuclear option’ of using article 155 of the constitution, which allows them to suspend the region’s autonomy and remove officials from office.”
  • “Mr Rajoy has so far been reluctant to use this powerful device, despite pressure by hawkish members of his own party. On Thursday, however, he promised ‘greater evils’ on the Catalan government if they go ahead with declaring independence.”

Japan

WSJ – Daily Shot: Deutsche Bank Bank of Japan Ownership of Japanese ETF Market 10/5

October 5, 2017

Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense – Financial News Doesn’t Rhyme But It Does Repeat Itself – Ben Carlson 10/3

  • “It’s important for investors to remember that investing based on the headlines is a bad idea. The fact that we have access to more information than ever these days is a great thing, assuming you have the correct filters in place. Most people don’t, so they become consumed by every little snippet or viral headline they glance at.”
  • “One of these days one of these warnings will seem prescient. More likely than not, the next person or firm to ‘call’ the next bubble or crash will be more lucky than good.”

Project Syndicate – Deja Voodoo – Joseph Stiglitz 10/4

FT – Uber: The uncomfortable view from the driving seat – Leslie Hook 10/4

  • “The ride-sharing group faces its biggest challenge: keeping its drivers, some of whom sleep in their cars to make ends meet.”

Markets / Economy

BlackRock – Economic Cycles in Context 10/4

Real Estate

WSJ – Retail Real Estate Holds Steady Despite Store Closures – Esther Fung 10/3

  • “Overall, the retail vacancy rate across different types of malls and retail centers stayed flat at 10% in the third quarter from the second quarter, with asking rents rising 0.4% to $20.74 a square foot from the previous quarter and up 1.8% year-over-year.”
  • “Lower construction activity helped to rein in supply and support occupancy levels. The volume of property completions, or properties that are developed and ready to be leased out, stood at 1.6 million square feet in the third quarter, which was the lowest level since 2014. The change in occupied retail space, or so-called net absorption, stood at 578,000 square feet, the lowest level since 2010.”
  • “While the retail industry is facing headwinds from e-commerce, an oversupply of stores and fast-changing consumer tastes, the restaurant sector as well as grocery stores and fitness centers are continuing to expand, helping to cushion the blow, landlords say.”
  • “In an August report, research and advisory firm IHL Group estimated there will be roughly 4,080 net store openings this year after taking into account 10,168 store closures. Apart from fast-food restaurants and beauty retailers, discount stores such as Dollar General and Dollar Tree are opening almost 2,000 new stores this year, the report added. Many of these dollar stores, however, will be in new build-to-suit locations rather than taking up existing retail space.”

Finance

Bloomberg – Trump Speaks and a $3.8 Trillion Market Hears an Existential Threat – Brian Chappatta 10/4

  • You can imagine that every holder and seller of municipal debt heard it when President Trump indicated that Puerto Rico’s $74 billion in debt would be wiped out.
  • The administration has since walked back from that ledge.

China

FT – Bond investors start to ask questions about Chinese takeovers – Robert Smith 10/3

  • “More than 18 months after ChemChina’s $44bn agreement to purchase Swiss agribusiness Syngenta capped a buying spree by Chinese companies across Europe, debt investors and rating agencies are starting to ask tough questions.”
  • “Their heightened scrutiny has left Syngenta’s investment grade rating in jeopardy, after Standard & Poor’s late on Monday put the company on review for a potential downgrade because of confusion over its support from the Chinese state.”
  • “The Swiss seeds company was last week forced to postpone a $7bn bond deal, intended to refinance bridge loans backing ChemChina’s takeover, as investors questioned its ability to settle class-action litigation in the US while maintaining an investment grade rating.”
  • Essentially, do they have State support or do they not? Who has priority to cash flows? And how much debt do they really have?
  • “Before ChemChina’s acquisition, Syngenta carried strong single-A credit ratings, but Standard & Poor’s now pegs the company at the lowest rung of investment grade.”
  • “Investors’ willingness to subject ChemChina’s financing to a more rigorous examination comes after China’s bank regulator earlier this year ordered domestic lenders to check the ‘systemic risk’ presented by ‘some large enterprises’ that have been acquiring companies overseas.”
  • “That has caused tension for bondholders in European companies owned by private Chinese groups such as HNA and Anbang.”
  • “’If you have implied support from the Chinese government, the ‘when’ and the ‘how’ are very important,’ Andrew Brady, an analyst at credit research firm CreditSights, says of state-owned ChemChina.”
  • “’In Syngenta’s case, we have to now assume it won’t come to protect an investment grade rating. And if support comes in the form of a loan, weak protections in the bond’s documentation mean that they could get layered with secured debt, meaning the exact mechanism of support could damage bondholders.’”
  • “As recently as August, S&P said in a report that ChemChina indicated that both it and China’s state-owned Assets Supervision and Administration Commission (Sasac) ‘remain committed’ to maintaining Syngenta’s investment grade rating ‘under all scenarios’.”
  • “Crucially, the rating agency said that Sasac would need to provide support to mitigate litigation liabilities with equity, to ensure there is ‘no additional debt imposed on Syngenta or ChemChina’.”
  • “A bond investor who looked at Syngenta’s proposed deal says that one of his biggest concerns was that it placed ‘absolutely no restrictions’ on the company’s ability to pay dividends to the heavily indebted ChemChina. S&P has projected that ChemChina will have a 10 to 13 times debt-to-ebitda ratio in 2017 and 2018.”
  • “’Let’s not kid ourselves, you wouldn’t freely put money into any other 13 times levered chemicals company,’ the investor says.”
  • “Lenders to European companies owned by large Chinese conglomerates have become increasingly focused on their ability to take cash out of the groups, with Swissport bondholders recently raising concerns after the airline services group started providing short-term loans to owner HNA.”
  • “A second bond investor says that he is increasingly wary of having exposure to European businesses owned by highly levered Chinese companies, describing them as ‘black boxes’.”
  • “’Nobody can be sure how much debt they have, or who really runs these businesses,’ he says.”

October 4, 2017

Perspective

USA Today – $5 to access your own money? ATM fees jump to record high and these cities are the worst – David Carrig 10/2

  • “Among the top 25 metropolitan areas, Pittsburgh residents encountered the highest fees. The top 25 metro areas with the highest average ATM fee, according to Bankrate.com:
    1. Pittsburgh: $5.19
    2. New York: $5.14
    3. Washington D.C.: $5.11
    1. Cleveland: $5.11
    2. Atlanta: $5.05″

Vox – These charts show Fox News really did ignore Puerto Rico’s crisis – Alvin Chang 10/2

Vox – Gun violence in America, explained in 17 maps and charts – German Lopez 10/2

VC – The Most Congested Cities in the World – Jeff Desjardins 10/3

Worthy Insights / Opinion Pieces / Advice

NYT – Nothing Will Change After the Las Vegas Shooting – Steve Israel 10/2

Bloomberg – Puerto Rico Governor’s Dire Warning: Millions May Flee the Island – Jonathan Levin 10/3

  • “You’re not going to get hundreds of thousands of Puerto Ricans moving to the states – you’re going to get millions.” Puerto Rican Governor Ricardo Rossello

Markets / Economy

WSJ – Hurricane Maria Packs a One-Two Punch for Insurance – Paul J. Davies 10/3

China

WSJ – China, With Methodical Discipline, Conjures a Market for Electric Cars – Trefor Moss 10/2

  • “In the U.S. and elsewhere, there is some skepticism about whether electric vehicles will be a significant market soon. China has made up its mind. One goal is to curb pollution and reduce reliance on foreign oil. China’s chief aim, though, is to use the emerging electric market to improve the patchy quality of its domestic auto makers. To that end, it is using industrial-policy measures to create a giant test bed for its companies’ designs and technology.”
  • “Already, Chinese-made models dominate. More than 100 electric models are on the domestic market. Sales of plug-in passenger vehicles reached 351,000 in 2016—nearly half the global total, according to EV-Volumes, a research group that tracks electric-car sales.”
  • “Foreign manufacturers were already making millions of gasoline cars in China annually, but they had held off building electric cars in the country until recently, and imports were discouraged by a 25% tariff. Bill Russo, a former Chrysler executive who is now managing director of auto consultancy Gao Fung Advisory Co. in Shanghai, said they had been reluctant to plunge into a market that didn’t yet offer significant scale.”
  • “Hints of scale are appearing. Sales of plug-in passenger cars in China have increased 40% this year, EV-Volumes said. They will make up 22% of Chinese auto purchases by 2025, projects Bernstein Research, up from 1% to 2% this year.”
  • “Volkswagen AG was firmly committed to diesel engines until it recently announced a sharp shift to embrace electric vehicles after its diesel-emissions scandal forced it to rethink strategy. China accounts for half its revenues, and VW Chief Executive Matthias Müller at last month’s Frankfurt auto show indicated China will help drive VW’s global transformation: ‘China and California are leading the way.’”
  • “Propelled by a China sales target of 1.5 million annual electric cars by 2025, VW will invest $83 billion rolling out 300 electric models world-wide by 2030, he said.”
  • “Some auto makers wonder if China’s electric-car demand growth will slow as the government dials back subsidies, as it has begun doing.”
  • “China began actively promoting electric cars in 2009 by introducing subsidies and setting sales targets. Sales began to take off in 2013. Electric vehicles took center stage in China’s industrial strategy with the 2015 launch of the Made in China 2025 plan, which calls for China to become a world leader in 10 future industries, including electric-vehicle production. China has provided $8 billion in subsidies so far.”
  • “China has gone a step beyond with its incentives. Authorities have guaranteed sales for Chinese makers, in part by buying vehicles for public fleets. Beijing’s municipal government has earmarked $1.3 billion to replace 70,000 city taxicabs with electric models.”
  • “China will have 4.8 million charging points by 2020, the government forecasts, up from 156,000 in March. The U.S. had 43,000 points in June, according to a University of Michigan study.”
  • “At those rates, China has roughly one charging point for every six electric cars, versus about one for every 17 in the U.S. and Norway.”
  • “Beijing’s most persuasive tool—and a reason foreign makers are eager to start producing in China—is restricting license plates for new gasoline-powered cars in seven cities. In Beijing, more than 11 million people typically enter a monthly lottery for 14,000 gasoline-car plates. Shanghai auctions them to the highest bidders. Electric-vehicle buyers in the cities can get tags almost instantly at no cost.”
  • Essentially, cars are going to happen. China has decided.

October 3, 2017

Perspective

WSJ – U.S. Families’ Wealth, Incomes Rose, Fed Survey Says – Harriet Torry 9/27

WSJ – Daily Shot: International Labor Organization – Regional Prevalence of Modern Slavery 10/2

Economist – At least 58 people are killed and 515 injured in a shooting in Las Vegas 10/2

Economist – High-net-worth individuals 9/30

  • Those with at least $1m in investable assets, excluding their main home.

Economist – Obituary: Stanislav Petrov 9/30

  • “‘The man who saved the world’ was 77.”

Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense – Taking Financial Advice From a Lottery Winner – Ben Carlson 10/1

FT – Rajoy faces huge task after Catalonia independence referendum – Tony Barber 10/1

  • “After Catalonia’s chaotic, disputed referendum on independence, Mariano Rajoy, Spain’s prime minister, will have to display political skills of the highest order. Sunday’s illegal vote has drastically polarized Catalonian society. It has fueled tensions between the region’s government and the authorities in Madrid to an intensity unseen since Spain’s return to democracy in the late 1970s.”
  • “Mr Rajoy faces an extraordinarily difficult task. He is adamant that it is his government’s fundamental duty to uphold the law and preserve the integrity of the Spanish state. Yet the police’s use on Sunday of batons and rubber bullets to disrupt the referendum risks deepening the confrontation and putting off the moment when Madrid and the Catalonian authorities sit down to find a way out of the impasse.”
  • “In principle, the most sensible way for Madrid and Catalonia’s authorities to defuse the tensions is to open a dialogue on an upgraded form of regional self-government. Luis de Guindos, Spain’s finance minister, hinted at such a solution two weeks ago when he aired the possibility of more financial autonomy for Catalonia. Yet he made it clear that the push for independence had to stop. It is a price many secessionists, for now, seem unwilling to pay.”

Economist – How digital devices challenge the nature of ownership 9/30

  • “In America this idea has already taken root in the ‘right to repair’ movement… In France appliance-makers must tell buyers how long a devices is likely to last – a sign of how repairable it is. Regulators should foster competition by, for instances, insisting that independent repair shops have the same access to product information, spare parts and repair tools as manufacturer-owned ones-rules that are already standard in the car industry.”

Markets / Economy

FT – Asia’s multinationals are hoarding cash like never before – Nikkei Asian Review 10/1

  • “Welcome to the slow-growth world, where China’s gross domestic product is expanding at the slowest rate in a quarter of a century and the global economy has stumbled through five subpar years. For eastern and western companies alike, finding good investments in this environment is anything but easy. Hence all the hoarding.”

China

WSJ – Why Chinese Are Diverting Their Consumer Loans to Real Estate – Grace Zhu and Chao Deng 9/30

  • “China’s government hoped more household borrowing would help the economy become more consumer-oriented. But instead of shopping, many Chinese are spending the money on real estate, undermining Beijing’s efforts to cool that market.”
  • “Chinese banks, encouraged by policymakers, have recently been lending more to households as companies sink perilously deep into debt. At first banks did this with mortgages; this year they have stepped up short-term consumer loans.”
  • “But signs are emerging that such loans, rather than funding such middle-class trappings as cars, household appliances or gadgets, are instead flowing to China’s stubbornly hot property market, padding home purchases when mortgage loans aren’t enough.”
  • “New short-term consumer credit surged 160% to 1.27 trillion yuan ($193 billion) in the first eight months of the year from the year-earlier period, according to data from the People’s Bank of China, the central bank. However, growth in consumption as measured by retail sales rose just 10.4% in August, in line with recent years.”
  • “E-house China R&D Institute, an independent Chinese research firm, estimates that at least one third of short-term consumer loans issued since March have gone toward property purchases.”
  • “With few investment options—domestic stocks are volatile and considered too risky, and China strictly controls capital moving out of the country—consumers see property as a fail-safe avenue for storing their wealth.”
  • “Mortgages form the lion’s share of household debt, which now accounts for the equivalent of 46% of China’s gross domestic product, compared with 17% in 2008, and 33% of outstanding bank credit, up from 18% a decade earlier.”
  • “China’s savings rate is still high compared with the West. However, Chinese households now owe the equivalent of 98% the average annual income, according to data from the Washington-based Institute of International Finance—on par with their counterparts in the U.S., the European Union and Japan, at 102%, 104% and 100% respectively.”

India

FT – India exporters struggle with Modi’s new tax system – Kiran Stacey 10/1

  • “Narendra Modi’s push to boost Indian exports is being undermined by the problems plaguing his government’s new tax system, companies have warned, with tens of thousands of exporters struggling to meet their short-term funding needs.”
  • “In September, it emerged that businesses lodged claims for tax credits worth nearly $10bn for the first month of the GST — far greater than ministers had been expecting.”
  • “As they look to increase tax revenues, officials have delayed paying credits to exporters, who have to pay their tax and then claim the cash back under the new system. Under the old regime, exporters did not have to pay tax at all on the supplies they bought.”
  • “‘Small and medium exporters are finding it especially tough, as they are not able to take out bank loans to fund their working capital while they wait for tax credits to be paid,’ Ajay Sahai, director-general of the Federation of Indian Export Organizations (FIEO), said.”
  • “Mr. Sahai estimates there are about 100,000 small and medium-sized exporters, up to 40% of which are now facing difficulties.”
  • “Meanwhile economic growth has also slowed, falling from 7% at the end of 2016 to just 5.7% for the quarter ending on June 30.”