Tag: China

August 16, 2017

If you were to read only one thing…

FT – IMF warns China over ‘dangerous’ levels of debt – Tom Mitchell 8/15

  • “In an annual review of the world’s second-largest economy, IMF staff said China’s annual economic growth would average 6.4% in 2018-20, compared with a previous estimate of 6%. The IMF is also predicting that the Chinese economy will expand 6.7% this year, up from its earlier forecast of 6.2% growth.”
  • “The Chinese government, which pledged to double the size of the economy between 2010 and 2020, has tolerated a rapid run-up in debt in order to meet its target. ‘The [Chinese] authorities will do what it takes to attain the 2020 GDP target,’ the IMF said.”
  • “As a result, the IMF now expects China’s non-financial sector debt to exceed 290% of GDP by 2022, compared with 235% last year. The fund had previously estimated that debt levels would stabilize at 270% of GDP over the next five years.”
  • “’International experience suggests that China’s current credit trajectory is dangerous with increasing risks of a disruptive adjustment,’ the IMF said in the strongly worded report.”
  • “In the aftermath of the global financial crisis, Chinese authorities unleashed a lending spree that more than quadrupled total debt to $28tn at the end of 2016.” 
  • “In its report, the IMF noted that China’s ‘credit efficiency’ had deteriorated sharply over the past decade, with ever larger amounts of money needed to generate the same amount of growth. ‘In 2008, new credit of about Rmb6.5tn was needed to raise nominal GDP by Rmb5tn,’ the fund said. ‘In 2016 it took Rmb20tn in new credit.’”
  • “The IMF added that had the Chinese government not turned on the credit taps, average real GDP growth in the five years to 2016 would have averaged 5.3% rather than 7.3%.”

Perspective

WSJ – Daily Shot: John Burns Real Estate Consulting – Gross Govt Debt as % of GDP v 10-Yr Bond Yield –  8/15

Worthy Insights / Opinion Pieces / Advice

FT – Shell’s strategic move into electricity – Nick Butler 8/13

  • Shell is thinking ahead – getting into the electricity supply business (to industrial and commercial users).

Real Estate

WSJ – Daily Shot: John Burns Real Estate Consulting – Home Value Index –  8/15

Energy

WSJ – Daily Shot: Dealogic – Oil & Gas High Yield Bond Issuance 8/14

WSJ – Daily Shot: IHS Markit & Houston Chronicle – Pumped Water into Hydraulic Fracturing Wells –  8/15

China

FT – China’s economy is addicted to debt – Jamil Anderlini 8/14

August 14, 2017

If you were to read only one thing…

FT – China ‘granny gang’ jailed in lending clampdown – Emily Feng 8/10

  • “A Chinese court has sentenced 14 members of a roving band of elderly female debt collectors to as many as 11 years in jail, in the latest sign of the country’s clampdown on informal channels of lending.”
  • “A court in the mountainous province of Henan this week found that members of the ‘granny gang’, as local media dubbed them, used loudspeakers to publicly cajole and intimidate borrowers into paying up.”
  • “The women, aged 50 to 70, were found guilty of engaging in ‘provocative and disturbing behavior’ that resembled ‘participating in gangster-like organizations’.” 
  • “The women were largely unemployed and looking for work when local debt-collection agencies recruited them at outdoor dancing classes in 2013. In return for helping secure loan repayments, the ‘grannies’ received Rmb200 ($30) per day as well as meals.”
  • “’I had nothing to do every day. When I was asked to help, I did it as a kind of fun,’ Gao Yun, one of the women, told a local newspaper.”
  • “The grannies employed a variety of tactics, including hitting and spitting at borrowers. A more common method was to give debtors an aggressive verbal dressing down until they handed over the money.”
  • “On their most recalcitrant targets, the women took more creative measures. In one 2015 incident, eight of the women began stripping to intimidate male borrowers to pay up, according to an interview that a debtor surnamed Zhao gave to local media.” 

Perspective

Howmuch.net – Do You Want the Best Bang for your Tuition Buck? Check out this College Rankings – Raul 8/10

Bloomberg – Venezuelan Currency Madness Valued Local Bank More Than Apple – Christine Jenkins 8/11

  • “What does it take to surpass Apple Inc. as the world’s most valuable traded company? One way is to be listed in Venezuela, with its massively overvalued currency.”
  • “Venezuelan stocks are ascending the ranks of the most valuable companies on Earth, with lender Mercantil Servicios Financieros CA briefly topping Apple’s market capitalization last week, and now back in the No.2 spot. Five other top-20 companies are also Venezuelan, a mirage caused by currency controls combined with the world’s fastest inflation.”
  • “Most of the lender’s theoretical $775 billion market capitalization evaporates if you stop using the official exchange rate of 10 bolivars to the dollar. The value would be 0.1% of that at the black-market rate that most Venezuelans have to use if they want hard currency.”

Markets / Economy

FT – The credit crisis did not lead to deleveraging – Martin Sandbu 8/10

Real Estate

Why Department Stores Remain on the Down Escalator – Miriam Gottfried 8/10

Energy

Vox – Solar eclipse 2017: how the solar power industry is prepping for a huge sunlight blip – Annette Choi 8/9

  • “The total solar eclipse passing over the United States on August 21 is going to be disruptive. Authorities are predicting huge traffic jams, strained cellphone networks, and insufficient bathrooms for the masses driving to the center of the show.”
  • “But there’s another disruption that will be brought on by the eclipse: power.”
  • “Since the last total solar eclipse passed over part of the US in 1979, we’ve grown a lot more dependent on solar to electrify our homes and businesses. According to the Solar Energy Industries Association, solar energy has grown by an average of 68 percent per year in the past decade. The country now has about 45 gigawatts of solar capacity installed, with 260,000 Americans employed in the industry.”
  • “The solar eclipse will significantly diminish that capacity for a couple of hours on August 21, especially in California and North Carolina.”
  • “The federal Energy Information Administration expects 1,900 utility-scale solar photovoltaic (PV) power plants in all will be affected.”
  • “Solar facilities have long been anticipating this eclipse, mapping out step-by-step demand management for the day of and arranging substitute energy sources to dispatch depending on various demand scenarios. Thanks to the unusually wet winter in California, hydroelectricity is abundant this year, says Greenlee (Steven Greenlee, spokesperson for the California Independent System Operator – CAISO).”
  • “In the past few months, CAISO — which manages 80% of California’s electric flow — has been busy seeking advice from German solar facilities.”
  • “During a 2015 solar eclipse that passed over Europe, 80% of Germany’s sunlight was cut off. For a country whose electricity is 40% powered by solar, it was hit hard. But despite the dramatic seesawing of solar production, the eclipse came and went without major disturbance.”

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.”

August 9, 2017

Perspective

Howmuch.net – The Richest Person in Every State 2017 – Raul 8/7

Bloomberg Businessweek – Japan’s Doomsday Preppers Are Buying $19,000 Bomb Shelters – Justin Mattingly 7/25

Worthy Insights / Opinion Pieces / Advice

Bloomberg – Gundlach, Wary of Pricey Market, Sets Cap on DoubleLine Size – Erik Schatzker 8/7

Real Estate

WSJ – Daily Shot: Goldman Sachs – Notable Announced Retail Store Closures 2017 8/8

China

FT – Beijing hails success in battle against capital flight – Gabriel Wildau 8/7

  • “China’s capital flow turned positive in the first half of 2017, a reversal from unprecedented outflows during the previous two years that sparked worries over financial stability.”
  • “Data released on Monday indicate that Beijing’s support for the renminbi and a crackdown on foreign deal making and other outflow channels have largely succeeded in curtailing capital flight.”
  • “China ran a $16bn surplus over the first half of this year, excluding central bank intervention, compared with a $417bn deficit in 2016, balance of payments data showed. The figures also showed that China added to its foreign exchange reserves on a valuation-adjusted basis in the second quarter for the first time since early 2014.”
  • “‘Hot money’ — short-term money movements viewed as a gauge of investor sentiment toward Chinese assets — continues to flow out of the country, albeit more slowly, according to FT estimates based on official data.”
  • “Hot money outflow was $126bn in the first half on a net basis, well behind the $891bn full-year pace for 2016. The FT uses a broad definition of the term, treating all money flows not related to goods trade or foreign direct investment as hot money.”
  • “That suggests investors are eager to take money out of China if they can skirt capital controls, despite recent tightening. Indeed, a Reuters poll of 60 forex analysts in late July showed that they expect the renminbi to erase most of this year’s gains over the next 12 months.”
  • “In a sign that the government remains vigilant despite the improvements, regulators have imposed new measures in recent weeks to prevent capital flight.”
  • “Last week, the foreign exchange regulator named and shamed nine banks for violating forex rules. The agency is also requiring lenders to issue daily reports on all foreign bank card purchases by customers worth more than Rmb1,000 ($149) beginning later this month.”

WSJ – China Gives Up Global Role for a Stronger Yuan – Nathaniel Taplin 8/7

  • “The yuan, which as recently as 2015 had overtaken the Japanese yen as the fourth most popular currency for global payments, now clocks in at No. 6, according to international-transaction service provider Swift, below the Canadian dollar and barely above the Swiss franc. Only 1.98% of international payments tracked by Swift were yuan-denominated in June 2017, down from 2.09% two years ago.”
  • “Given the scale of the bleeding in 2015 and 2016, China’s leaders likely had little choice but to close the drawbridge.”

August 1, 2017

Perspective

FT – Apple removes apps that bypass China’s censors – Hannah Kuchler and Max Seddon 7/30

  • “Apple has removed from its Chinese app store applications that enable users to bypass China’s ‘Great Firewall’, in a move that developers have condemned as ‘censorship’.”
  • “The Silicon Valley company has withdrawn virtual private network (VPN) apps from the store, as it pulls all software that do not comply with local law, even if the makers are based outside the country.”
  • “VPNs allow users to access content banned by Chinese censors to control access to information online. This has, in effect, created a ‘Chinese internet’, without many western social media or search engine sites.”

Project Syndicate – Venezuela’s Unprecedented Collapse – Ricardo Hausmann 7/31

  • “In a hastily organized plebiscite on July 16, held under the auspices of the opposition-controlled National Assembly to reject President Nicolás Maduro’s call for a National Constituent Assembly, more than 720,000 Venezuelans voted abroad. In the 2013 presidential election, only 62,311 did. Four days before the referendum, 2,117 aspirants took Chile’s medical licensing exam, of which almost 800 were Venezuelans. And on July 22, when the border with Colombia was reopened, 35,000 Venezuelans crossed the narrow bridge between the two countries to buy food and medicines.”
  • “Venezuelans clearly want out – and it’s not hard to see why.”
  • “But is this just another bad run-of-the-mill recession or something more serious?”
  • “The most frequently used indicator to compare recessions is GDP. According to the International Monetary Fund, Venezuela’s GDP in 2017 is 35% below 2013 levels, or 40% in per capita terms. That is a significantly sharper contraction than during the 1929-1933 Great Depression in the United States, when US GDP is estimated to have fallen 28%. It is slightly bigger than the decline in Russia (1990-1994), Cuba (1989-1993), and Albania (1989-1993), but smaller than that experienced by other former Soviet States at the time of transition, such as Georgia, Tajikistan, Azerbaijan, Armenia, and Ukraine, or war-torn countries such as Liberia (1993), Libya (2011), Rwanda (1994), Iran (1981), and, most recently, South Sudan.”
  • “Put another way, Venezuela’s economic catastrophe dwarfs any in the history of the US, Western Europe, or the rest of Latin America. And yet these numbers grossly understate the magnitude of the collapse…”
  • “Inevitably, living standards have collapsed as well. The minimum wage – which in Venezuela is also the income of the median worker, owing to the large share of minimum-wage earners – declined by 75% (in constant prices) from May 2012 to May 2017. Measured in dollars at the black-market exchange rate, it declined by 88%, from $295 per month to just $36.”
  • “Measured in the cheapest available calorie, the minimum wage declined from 52,854 calories per day to just 7,005 during the same period, a decline of 86.7% and insufficient to feed a family of five, assuming that all the income is spent to buy the cheapest calorie. With their minimum wage, Venezuelans could buy less than a fifth of the food that traditionally poorer Colombians could buy with theirs.”

Worthy Insights / Opinion Pieces / Advice

WSJ – Could Football Ever End? – Jason Gay 7/30

  • “A new concussion study provokes more existential worry in the NFL – and, reportedly, an early retirement.”

FT – With oil prices, half a step is not enough – Nick Butler 7/30

  • Saudi Arabia’s additional production curbs are a step in the right direction, but there are just too many other producers that they don’t control.

Markets / Economy

WSJ – Daily Shot: FRED – Velocity of M2 Money Stock 7/31

Real Estate

WSJ – Supermarkets Face a Growing Problem: Too Much Space – Heather Haddon and Julie Jargon 7/31

  • “A massive build-out by retailers has left the country piled up with grocery shelves as consumers are shifting from big weekly shopping trips to more snacking and to-go meals. The mismatch has flattened retail sales and leaves the industry vulnerable to a wave of closures that some executives, bankers and industry experts think is coming soon.”
  • “Commercial square footage of retail food space per capita last year set a record, with 4.15 square feet of food retail per person, according to CoStar Group, a commercial real-estate firm, nearly 30 times the amount of space allocated to groceries at major chains in 1950.”
  • “To be sure, major grocery chains weren’t as numerous decades ago, with many Americans shopping for food at mom and pop stores.”
  • “But the growth in groceries have extended across many types of retailers in recent years. Part of the expansion comes from grocers, who accelerated their store openings as a way to drive sales growth after the 2008 recession. At the same time, club chains, dollar stores, pharmacies—and even gas stations—increased their fresh food offerings to drive traffic and boost profits.”
  • Additionally, this article doesn’t mention the increasing foot prints of these grocers. Many are resembling department stores, but with an emphasis on food.

Finance

WSJ – Private Equity Takes Fire  as Some Retailers Struggle – Lillian Rizzo 7/30

  • “A wave of retail bankruptcies washing through court has revived an old debate about the role of private-equity firms in accelerating the problems of companies in distress.”
  • “Payless ShoeSource Inc., Gymboree Corp., rue21 Inc. and True Religion Apparel Inc. were all acquired by private-equity firms during the past decade. Now, lawyers for creditors have questioned whether private-equity firms share blame for the retailers’ financial collapse, in some cases by loading debt on the companies.”
  • “In the case of Payless, investors Golden Gate Capital and Blum Capital, after a leveraged buyout in 2012, over the next two years paid themselves $350 million in dividends—in total putting more than $700 million in debt on the company. In 2016, Payless said in court papers, it had about $2.3 billion in global net sales, and nearly $840 million in debt.”
  • “Vendors and landlords alleged in court papers that the dividend payouts, along with other payments to the investors, left the retailer particularly vulnerable to collapse just as technology and shifting consumer behavior upended the retail industry.”
  • “In general, private-equity executives say they often help companies improve operations and grow and that, sometimes, economic forces are beyond what any company could weather.”
  • “Moreover, retail woes are much bigger than private equity and extend to many companies that aren’t owned by such investors. Some private-equity investments haven’t had the problems others are experiencing.”
  • “Bankruptcy cases are messy by nature, and creditors—typically facing losses—are often determined to minimize them. In Payless’s case, which moved closer to exiting bankruptcy protection this month, lenders owed a majority of its debts will take control of the company.”

China

Bloomberg – China Asks Waldorf Owners Anbang to Sell Assets Abroad, Sources Say 7/31

  • “Chinese authorities have asked Anbang Insurance Group Co., the insurer whose chairman was detained in June, to sell its overseas assets, according to people familiar with the matter.”
  • “The government has also asked Anbang to bring the proceeds back to China after disposing of holdings abroad, said the people, who asked not to be identified because details are private. It is not clear yet how Anbang will respond, the people said.”
  • “Anbang was among the most prominent of Chinese insurers that went on a buying binge across the globe, fueled by soaring sales of investment-type insurance policies, with its 2014 acquisition of New York’s Waldorf Astoria hotel catapulting it into the public eye. Chairman Wu Xiaohui has been detained for questioning since mid-June, while the policies fueling its growth have been all but banned by regulators.”
  • “Anbang’s rise in recent years was fueled by sales of lucrative investment products that offered among the highest yields compared with peers. China’s insurance regulator this year started clamping down on what it termed ‘improper innovation’ and tightened rules on high-yield, short-term investment policies. Anbang and other aggressive insurers such as Foresea Life got caught up in the crackdown.”
  • “One Anbang product, called Anbang Longevity Sure Win No. 1, boosted the firm’s life insurance premiums almost 40-fold in 2014 by offering yields as high as 5.8%. That helped provide fuel for the firm’s more than $10 billion of overseas acquisitions since 2014 and equally ambitious investing in the domestic stock market.”

FT – One of China’s biggest P2P lenders quits ahead of clampdown – Louise Lucas and Sherry Fei Ju 7/30

  • “China’s pending regulatory crackdown on the $120bn peer-to-peer lending industry has claimed its first scalp before it has even begun, with one of the biggest players saying it will wind up its business in an industry full of bad loans and no profits.”
  • “Beijing this month said it would delay regulations that will bar online lenders from guaranteeing principal or interest on loans they facilitate, cap the size of loans at Rmb1m for individuals and Rmb5m for companies, and force lenders to use custodian banks — a requirement only a fraction of the industry has met so far.”
  • “Imposition of the new rules has been delayed from next month until June next year to give companies more time to comply.”
  • “But Hongling Capital has already thrown in the towel, with founder and chairman Zhou Shiping last week admitting that ‘P2P lending is not what we are good at, neither is it something we see potential in. This [P2P lending] business of ours would always be cleared out eventually — it’s only a matter of time.'”
  • “Hongling, which has Rmb17.6bn ($2.6bn) in loans, plans to wind down its eight-year online lending business by the end of 2020.”
  • “According to Online Lending House, a website that tracks the industry, the number of P2P lenders peaked at 2,600 in 2015, while 3,795 platforms have collapsed since 2011.”
  • “Outstanding loans from China P2P lending platforms totaled Rmb816.2bn ($121bn) at the end of December, double the figure of a year earlier, according to P2P consultant WDZJ.com.”

WSJ – Chinese Banks’ Dash for Capital Gets Under Way – Anjani Trivedi 7/31

  • “Investors have long questioned when China’s banking system, with its heaps of bad loans and hidden leverage, would resort to raising much-needed equity. From the look of it, the weakest lenders are starting to do so.”
  • The method, convertibles. To start, “Ping An Bank, a midsize lender notorious both for selling piles of high-yielding investment products and for sitting on masses of overdue loans, said last week that it plans to issue 26 billion yuan ($3.9 billion) of convertible bonds—uncommon in China—that can be switched into its Shenzhen-listed shares. While convertibles don’t count as equity straight away, they could help improve Ping An’s equity levels when they are turned into stock.”
  • Debt is the green

South America

FT – Venezuelans snub Maduro vote on day marred by violence – Gideon Long 7/31

  • In a word, impunity…
  • “Venezuelans on Sunday largely snubbed Nicolás Maduro’s election for a new all-powerful political assembly, in a vote marred by violence that killed at least 10 people and left seven police officers injured by a bomb attack.”
  • “Opposition leaders rejected the electoral commission’s turnout figure of 8.1m — 41.5% of the electoral register — saying only about 2m had actually voted. Analysts estimated the turnout at 3m-4m.”
  • “The president’s critics say the new assembly, which will be convened within 72 hours, will snuff out the last vestiges of democracy in Venezuela after nearly two decades of populist leftwing rule, turning the country into a new Cuba. It will have the power to dissolve the democratically elected Congress, where the president’s opponents have a majority, rewrite the constitution, scrap future elections and draft new laws.”
  • “In the run-up to the vote, all reliable polls had suggested that between two-thirds and three-quarters of Venezuelans opposed Mr. Maduro’s assembly. One poll said only about 12% of the electorate would vote for it.”
  • The country’s decent continues.

WSJ – Daily Shot: Venezuela Money Supply YoY Change 7/21

  • “Venezuela’s money printing has accelerated. The broad money supply has risen 400% over the past year.”

July 27, 2017

Perspective

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

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

Worthy Insights / Opinion Pieces / Advice

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

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

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

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

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

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

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

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

  • A family matter made public.

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

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

Real Estate

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

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

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

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

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

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

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

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

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

Energy

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

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

Environment / Science

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

Health / Medicine

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

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

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

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

Britain

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

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

China

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

  • Arguably the second most powerful person in China.

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

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

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

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

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

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

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

South America

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

July 26, 2017

If you were to read only one thing…

NYT – 110 N.F.L Brains 7/25

  • “Dr. Ann McKee, a neuropathologist, has examined the brains of 202 deceased football players. A broad survey of her findings was published on Tuesday in The Journal of the American Medical Association.”
  • “Of the 202 players, 111 of them played in the N.F.L. – and 110 of those were found to have chronic traumatic encephalopathy, or C.T.E., the degenerative disease believed to be caused by repeated blows to the head.”
  • “The brains here are from players who died as young as 23 and as old as 89. And they are from every position on the field – quarterbacks, running backs and linebackers, and even a place-kicker and a punter.”

Perspective

WSJ – Daily Shot: Forbes – Large Tech Firm Lobby Budgets 7/25

WSJ – U.S. Military’s Space in Trump Tower Costs $130,000 a month – Paul Sonne 7/19

  • It’s a 3,475 sq. ft. space, so $37.41 per sq. ft. per month. Mind you, “the most expensive Trump Tower listing recently was a 3,725 sq. ft., three-bedroom apartment on the 62nd floor. It was listed in the spring of 2016 for $50,000 a month unfurnished and $60,000 a month furnished, according to Streeteasy.com.”
  • Basically, Trump’s neighbor recognizes they have a captive audience.

FT – Google and Facebook lay foundations for modern-day company towns – George Hammond 7/19

Worthy Insights / Opinion Pieces / Advice

Bloomberg – Fund Managers and Strategists Think the Bull Market Is Ending Next Year – Adam Haigh, Natasha Doff, Dani Burger and Julie Verhage 7/25

  • “We have had a liquidity-fueled bull market. If that is taken away, there is a pressure point.” – Remi Olu-Pitan, Schroder Investment Management Ltd.

WP – Disabled and disdained – Terrence McCoy 7/21

  • “In rural America, some towns are divided between those who work and those who don’t.”

FP – The argument to be a buyer of the Saudi Aramco IPO – John Dizard 7/21

  • “As one international oil analyst says, though: ‘The Permian is preventing high prices today, but ensuring high oil prices tomorrow. The low prices are holding back investment in most of the world, and that is storing up a significant problem in meeting demand in the future.'”
  • “That is the argument to be a buyer of the Saudi Aramco IPO.”
  • “There are two bets involved in the listing. Can Saudi Arabia contain the social and strategic pressures caused by cheap oil? And will the capital markets eventually stop subsidizing shale producers?”

WSJ – Investors, Stop Worrying About Why ‘Nobody’ Is Worrying – Jason Zweig 7/21

Markets / Economy

WSJ – In Reversal, Colleges Rein In Tuition – Josh Mitchell 7/23

  • “U.S. college tuition is growing at the slowest pace in decades, following a nearly 400% rise over the past three decades that fueled middle class anxieties and a surge in student debt.”
  • “Abundant supply is running up against demand constraints. The number of two-year and four-year colleges increased 33% between 1990 and 2012 to 4,726, Education Department data show. But college enrollment is down more than 4% from a peak in 2010, partly because a healthy job market means fewer people are going back to school to learn new skills.”
  • “Longer-running economic and demographic shifts also are at play. Lower birthrates and the aging of baby boomer children have reduced the pool of traditional college-age Americans. The number of new high-school graduates grew 18% between 2000 and 2010 but only 2% in the first seven years of this decade, Education Department data show.”
  • “Another factor: Congress last increased the maximum amount undergraduates could borrow from the government in 2008. Some economists have concluded schools raise prices along with increases in federal financial aid. A clampdown on aid, in turn, could limit the ability of schools to charge more.”
  • “But other factors could keep cost pressures rising. George Pernsteiner, head of State Higher Education Executive Officers, a trade group that tracks state funding for schools, notes that many states are on track to experience budget crunches as the population ages and health-care and public pension costs rise. That could squeeze public support for schools.”

Real Estate

WSJ – Americans Pour Record Sums Into Home Improvements – Laura Kusisto and Sarah Chaney 7/25

  • “A shortage of new single-family homes across the U.S. is pushing up prices and locking many buyers out of the market. The silver lining: a boom in renovations of existing homes.”
  • “Americans are expected to pour a record $316 billion into home remodeling this year, up from $296 billion a year earlier, according to Harvard University’s Joint Center for Housing Studies.”

FT – Funds hunt for cracks in most-prized US shopping malls – Miles Johnson 7/21

  • “A defining feature of the financial crisis was a group of hedge funds making vast sums by wagering against supposedly AAA-rated mortgage debt well before markets imploded in 2008.”
  • “Now some believe a similar story will play out for US shopping malls — that the most risky investments will end up being those that investors now believe to be the safest. Central to their premise is the idea that too much faith may be being placed in a classification system used for shopping malls that is little known outside of the real estate sector.”
  • “Malls are given ratings by a small group of property consultants generally ranging from A++ to C based on factors that include their sales per square foot and location. While there is no universally accepted system for ranking the malls, with each consultant having slightly different methodologies, banks and investors tend to rely on these ratings to make decisions over how secure each mall is as a creditor or investment.”
  • “The stock market has until recently appeared to believe that prime ‘A’ malls are largely insulated from the pain being felt across a US retail sector being shaken by e-commerce.”
  • “Yet there is growing evidence to suggest that these prime malls, which have been treated by investors and lenders alike as rock solid bets in the face of the internet headwinds, are not as protected as once thought.”
  • “The hedge funds wagering against the highest quality malls believe that the wider market will come to believe these A-quality malls are far more similar to lesser ranked ones. ‘This idea that there are these magic malls in America that are immune to secular change is a myth,’ the US-based hedge fund manager says.”
  • “Some argue that the market underappreciates that A class mall operators and B and C class mall operators all have very similar tenant bases, in spite of being in different locations.”

Energy

BloombergGadlfy – Venezuela’s Perfect Storm for Oil May Be About to Break – Liam Denning 7/21

  • “We may be about to see the first sovereign producer to unequivocally fail.”
  • “The oil producer in question is Venezuela, and that assessment comes courtesy of Helima Croft, who is global head of commodity strategy at RBC Capital Markets and formerly worked with both the Council on Foreign Relations and the CIA.”
  • “But things are building to a head, partly due to the relentless logic of the bond market and partly due to the more proprietary logic of U.S. foreign policy.”
  • “Venezuelan bonds, which haven’t looked rock-solid for a few years, crashed this week as embattled President Nicola Maduro renewed calls to rewrite the country’s constitution, which would effectively disenfranchise the millions of Venezuelans who oppose him and entrench his regime. The U.S. has warned it may impose much tougher sanctions if Maduro goes ahead with his plan.”
  • “Venezuela’s economy is in free-fall: By the end of this year, it will have shrunk by 32% compared to where it was at the end of 2013, according to International Monetary Fund forecasts. Also by the end of this year, the government is on the hook to pay back more than $5 billion in debt — including bonds owed by the state-owned oil champion, Petróleos de Venezuela, S.A., or PdVSA — plus billions more in interest. As of this week, Venezuela’s international reserves stood at less than $10 billion.”
  • “Meanwhile, mismanagement, a lack of investment and re-nationalization of foreign oil companies’ interests have caused Venezuela’s oil production to slump from around 3.3 million barrels a day a decade ago to about 2 million now. Even allowing for the fact that domestic consumption has dwindled along with GDP, Venezuela’s surplus of oil available for earning export dollars has shrunk considerably.”
  • “Compounding this is the fact that the country must devote a lot of its output to paying off loans from China and Russia, further reducing the actual amount it can use to generate cash. Francisco Monaldi, a fellow in Latin American energy policy at Rice University’s Baker Institute for Public Policy, estimates that could be as little as 800,000 barrels a day.”
  • “For three years, oil watchers have been waiting for a chaotic wave of bankruptcies in places like Texas and North Dakota to jolt the market. They’ve been looking in the wrong place.”

FT – Coal has no future, says US railroad boss – Gregory Meyer 7/19

  • “One of the largest haulers of US coal says fossil fuels have no future, despite pledges to the contrary from President Donald Trump.”
  • “CSX, a freight railroad company with origins in the bituminous coal seams of Appalachia, will not buy a single new locomotive to pull coal trains, chief executive Hunter Harrison told analysts on Wednesday.”
  • “’Fossil fuels are dead,’ Mr Harrison said. ‘That’s a long-term view. It’s not going to happen overnight. It’s not going to be in two or three years. But it’s going away, in my view.’” 
  • “North American railroads have reshaped their asset holdings in acknowledgment that coal’s apex has passed.”
  • “Lance Fritz, chief executive of the Union Pacific railroad, said in a recent interview that Mr Trump’s move to scrap Clean Power Plan regulations was unlikely to grow its coal business. ‘It takes away a headwind,’ he said.”

Tech

NYT – Silicon Valley Giants Confront New Walls in China – Paul Mozur and Carolyn Zhang 7/22

  • “It’s basically like someone who has been training for Olympic taekwondo going up against a street fighter. The Olympic fighter is waiting for the whistle, and the street fighter already has him on the ground hitting him with elbows. There’s no rules.” – Andy Tian, co-founder of Asia Innovations Group and former general manager of Zynga China

FT – Uber, Amazon and Microsoft braced for accounting shake-up – Leslie Hook and Richard Waters 7/19

  • “Uber’s reported revenues are being cut in half and sales at Amazon and Microsoft could be higher than previously stated — all thanks to a forthcoming change to accounting rules.”
  • “An update to generally accepted accounting principles (GAAP) for US companies is turning out to have particularly large consequences in parts of the tech industry, which is having to overhaul the way it reports revenues and costs.”
  • “One of the more dramatic impacts will affect car-booking services such as Uber, a private company whose GAAP revenue drops by more than half when it adopts the new standard, which it plans to do this year.”
  • “Uber’s first-quarter revenue this year was $3.4bn under old GAAP accounting, but it says that under the new rules its revenue would have been just $1.5bn for the same period. Uber has already started sharing the lower figure with investors.”
  • “Under the old standard, car-booking services such as Uber and Lyft counted their commissions from regular rides, plus the entire fare of carpool rides, as revenue. Under the new standard, only the commissions from both regular and carpool rides will count as revenue.”
  • “The shift is due to changes to the ‘principal versus agent’ rules that determine when a company is acting as a principal and when it is acting as an agent. The car-booking services were previously considered the ‘principal’ for carpooled rides. As private companies, they must adopt the new standard by the beginning of 2019, although Uber has moved to do so much earlier.”
  • “The new standard, known as Revenue from Contracts with Customers, is designed to narrow the distance between US GAAP rules and International Financial Reporting Standards (IFRS).”

Agriculture 

WSJ – Daily Shot: CBOT Soft Red Winter Wheat Futures 7/24

  • “The recent wheat rally has been almost entirely reversed.”

Asia – excluding China and Japan

FT – Jailed Duterte foe prepares for long haul – Michael Peel 7/20

  • “Philippine Senator Leila de Lima, 57, was arrested at her senate office in February on charges that she received payoffs from jailed drug lords. She has branded the allegations ‘simply surreal’ and said they were part of a ‘personal vendetta’ by a president who is ‘rather obsessed with me’.”
  • “Ms. de Lima has certainly earned implacable enmity from Mr. Duterte for her efforts to probe his bloody drugs wars first as a provincial mayor and now as president. She maintains her innocence but also accepts her stay in jail could be a long one. The same day she marks five months in detention next week, Mr. Duterte will give an annual state of the nation speech against a background of soaring approval ratings.”
  • “I think as long as Duterte is president (5 more years), I will be locked up in jail,” Ms. de Lima says. “I have no false hopes about achieving justice very soon.”

China

NYT – In China, Herd of ‘Gray Rhinos’ Threatens Economy – Keith Bradsher and Sui-Lee Wee 7/23

  • “Let the West worry about so-called black swans, rare and unexpected events that can upset financial markets. China is more concerned about ‘gray rhinos’ — large and visible problems in the economy that are ignored until they start moving fast.”
  • “The rhinos are a herd of Chinese tycoons who have used a combination of political connections and raw ambition to create sprawling global conglomerates. Companies like Anbang Insurance Group, Fosun International, HNA Group and Dalian Wanda Group have feasted on cheap debt provided by state banks, spending lavishly to build their empires.”
  • “Such players are now so big, so complex, so indebted and so enmeshed in the economy that the Chinese government is abruptly bringing them to heel. President Xi Jinping recently warned that financial stability is crucial to national security, while the official newspaper of the Communist Party pointed to the dangers of a ‘gray rhinoceros,’ without naming specific companies.”

FT – China’s LeEco appoints new chairman from Sunac – Emily Feng 7/21

  • Sunac continues to be busy. In addition to its property acquisitions from Dalian Wanda, Sunac’s chairman – Sun Hongbin, is adding a new chairmanship to his belt, that of the struggling Chinese tech company, LeEco.

WSJ – The Saga Isn’t Over for Dalian Wanda – Jacky Wong 7/20

NYT – At the Finish, Dalian Wanda of China Rewrites a Blockbuster Sale – Sui-Lee Wee and Zhang Tiantian 7/19

  • “Dalian Wanda Group, the Chinese conglomerate, tore up a $9.3 billion agreement to sell a portfolio of hotels and theme parks, unexpectedly reaching new deals on the properties that highlighted uncertainty over the financial health of the country’s biggest companies.”
  • “Wanda had reached an overall agreement with the property firm Sunac China Holdings last week, but Wanda announced at a signing ceremony on Wednesday that it was backtracking and would instead sell just the theme parks to Sunac. The hotels will instead be sold to R&F Properties, based in the southern Chinese city of Guangzhou.”
  • “The hasty reorganization of the deals has raised concern about the due diligence conducted by many of China’s first-generation dealmakers as they seek to become bigger players domestically and around the world.”
  • “The signing was dominated by the announcement that Sunac would pay $6.5 billion for a 91% stake in Wanda’s 13 theme parks across China, while R&F Properties would buy 77 hotels from Wanda for $3 billion. In a sign of the wildly fluctuating valuations of assets, however, Wanda had said last week that it was selling Sunac only 76 hotels, but that they were worth $5 billion.”

South America

WSJ – Daily Shot: Venezuelaecon.com – Venezuelan Bolivar Black Market Exchange Rate 7/25

Turkey

NYT – Turkey Sees Foes at Work in Gold Mines, Cafes and ‘Smurf Village’ – David Segal 7/22

  • “Since then (after the failed attempt to overthrow the government of President Recep Tayyip Erdogan on July 15, 2016), more than 950 companies have been expropriated, all of them purportedly linked to Fethullah Gulen, the Muslim cleric who Turkish leaders say masterminded the putsch.”
  • “About $11 billion worth of corporate assets — from small baklava chains to large publicly traded conglomerates — have been grabbed by the government, a systematic taking with few precedents in modern economic history. Several thousand dispossessed executives have fled overseas to cities as far-flung as Nashville and Helsinki. The less fortunate were imprisoned, part of a mass incarceration campaign that has included purged members of the military, judiciary, police and news media, adding 50,000 new inmates to the prisons.”