Perspective
Visual Capitalist – What Assets Make Up Wealth? – Jeff Desjardins 1/19
Worthy Insights / Opinion Pieces / Advice
A Teachable Moment – These Are Like, Really Bad Funds – Anthony Isola 1/18
Bloomberg View – No One Wants Your Used Clothes Anymore – Adam Minter 1/15
- “A once-virtuous cycle is breaking down. What now?”
FT – Fixation on timing of peak oil is ‘misguided’ – Anjli Raval 1/17
Pragmatic Capitalism – 2 Annoying Myths About Low Rates – Cullen Roche 1/19
- “There’s usually two forms of ideological rhetoric that accompany low interest rates. The first is that the Fed has ‘manipulated’ interest rates lower. And the second is that the Fed is ‘punishing savers’. These myths have scared people away from stocks and bonds and left them frozen in cash or worse, chasing commodities and gold. So let’s take a look at each of these ideas because some clarity might help put things in a more practical perspective.”
Wolf Street – What Will Rising Mortgage Rates Do to Housing Bubble 2? – Wolf Richter 1/20
- “The US government bond market has further soured this week, with Treasuries selling off across the spectrum. When bond prices fall, yields rise. For example, the two-year Treasury yield rose to 2.06% on Friday, the highest since September 2008.”
- “In the chart, note the determined spike of 79 basis points since September 8, 2017. That was the month when the Fed announced the highly telegraphed details of its QE Unwind.”
- “The ten-year yield – the benchmark for financial markets that most influences US mortgage rates – jumped to 2.66% late Friday.”
- “This is particularly interesting because the 10-year yield had declined from March 2017 into August despite the Fed’s three rate hikes last year, and rising short-term yields.”
- “At 2.66%, the 10-year yield has reached its highest level since April 2014, when the ‘Taper Tantrum’ was winding down. That Taper Tantrum was the bond market’s way of saying ‘we’re shocked and appalled,’ when Chairman Bernanke dropped hints the Fed might eventually begin tapering what the market had called ‘QE Infinity’.”
- “The 10-year yield has now doubled since the historic intraday low on July 7, 2016 of 1.32% (it closed that day at 1.37%, a historic closing low):”
- “Friday capped four weeks of pain in the Treasury market. But it has not impacted yet the corporate bond market, and the spread in yields between Treasuries and corporate bonds, and particularly junk bonds, has further narrowed. And it has not yet impacted the stock market, and there has been no adjustment in the market’s risk pricing yet.”
- “But it has impacted the mortgage market. On Friday, the average 30-year fixed-rate mortgage with conforming loan balances ($417,000 or less) for top-tier borrowers, according to Mortgage News Daily, ended at 4.23%, the highest in nine months.”
- “But historically, 4.25% is still very low. And likely just the beginning of a long, uneven climb higher.”
- “And the impact on mortgage payments can be sizable. When rates rise for example from 3.5% to 4.5%, the payment for a $250,000 mortgage jumps by $144 to $1,267 a month (a 13% increase).”
- “A one-percentage-point increase takes on larger proportions in a place like San Francisco, where it might take a mortgage of $1.25 million to buy a median home. At 3.5%, the monthly payment is $5,613. At 4.5%, it jumps to 6,334, an increase of $721 a month and an increase of $8,652 a year.”
- “A mortgage rate of 4.5% is still very low! And it is likely headed higher.”
- “Since the Financial Crisis, the ultra-low mortgage rates were among the factors that have caused home prices to soar. But as rates are heading higher, the housing market is in for a big rethink. These higher rates are going to be applied to the now prevailing sky-high home prices.”
- “There’s another aspect to this equation: Homebuyers who are willing and able to stretch to cough up those higher mortgage payments can’t spend this money on other things. Falling mortgage rates gave a huge boost to home prices and to the entire economy in numerous ways. But that process will go into reverse.”
WSJ – Can We Be Brutally Honest About Investment Returns – Jason Zweig 1/19
- “Pension funds have fantastical expectations of the market.”
Markets / Economy
Economist – Return of the Mac – Daily Chart 1/18
WSJ – IBM Revenue Grows for the First Time Since 2012 – Ted Greenwald 1/18
- First time in 23 quarters.
Bloomberg – Inflation Isn’t Missing Fed’s 2% Target in West’s Booming Cities – Steve Matthews 1/17
Real Estate
Bloomberg – The Value of New York Real Estate Jumps More Than 9% – Martin Z Braun 1/17
- “The city set a value of $1.26 trillion for its more than one million properties for the fiscal year beginning in July, an increase of 9.4% over the previous period that promises to boost the government’s tax collections.”
- “Residential and commercial property value in Brooklyn rose 12%, the most of New York’s five boroughs, to $335.5 billion, according to the city’s finance department. Manhattan property rose 7.3% to $483.6 billion, the slowest growth.”
- We’ll see if the values hold up in Brooklyn as rents – hence revenues – soften; see below.
WSJ – Brooklyn Landlords Slash Rents to Attract Tenants – Josh Barbanel 1/17
- “The median rent across the borough has declined by more than 9% since the peak in 2014, forcing landlords to offer more concessions.”
NYT – Tax Overhaul Is a Blow to Affordable Housing Efforts – Conor Dougherty 1/18
- “’It’s the greatest shock to the affordable-housing system since the Great Recession,’ said Michael Novogradac, managing partner of Novogradac & Company, a national accounting firm based in San Francisco.”
- “According to an analysis by his firm, the new tax law will reduce the growth of subsidized affordable housing by 235,000 units over the next decade, compounding an existing shortage.”
Reuters – German discounter Lidl slows U.S. expansion – Douglas Busvine 1/17
WSJ – It’s Time for China’s Property Developers to Quit Gambling – Jacky Wong 1/19
- “Chinese house prices have been booming for two years and shares of the country’s home builders—which have made big leveraged bets on the market—have likewise been on a tear. The question now, as the market shows signs of cooling, is: Should they hold or fold?”
- “Some of the sector’s best performers are also the most indebted. Shares in China Evergrande, which sits on net debt of $63 billion, have surged nearly six times in value since the beginning of 2017 (this has led to the company’s chairman – Hui Ka Yan – becoming the wealthiest person in China). Likewise, Sunac China’s shares have risen more than five times in the same period. Its net debt is equivalent to four times its equity, while the ratio is 240% for Evergrande. The average for U.S. real-estate firms, by contrast, is 96%, according to S&P Global Market Intelligence.”
- “There have been signs of developers deleveraging. Evergrande raised a total of $20 billion last year by selling about a third of its property business in three rounds—the latest in November. Sunac raised $1 billion from issuing new shares last month.”
- “More remedial action will be needed if the cooling of China’s housing market continues. Data this week showed housing prices in China ticked up slightly in December; but growth is much slower now than a year ago, and prices are heading down in major markets such as Beijing. Lower revenues mean developers will have to reduce their already sky-high debt-servicing costs: Evergrande’s interest bill in the first half of last year was equal to about half its operating profit, for example. The company has reported negative operating cash flow ever since it was listed in 2009.”
Finance
Visual Capitalist – The Periodic Table of Commodity Returns – Jeff Desjardins 1/18
Cryptocurrency
Bloomberg – Hackers Have Walked Off With About 14% of Big Digital Currencies – Olga Kharif 1/18
- “Digital currencies and the software developed to track them have become attractive targets for cybercriminals while also creating a lucrative new market for computer-security firms.”
- “In less than a decade, hackers have stolen $1.2 billion worth of Bitcoin and rival currency Ether, according to Lex Sokolin, global director of fintech strategy at Autonomous Research LLP. Given the currencies’ explosive surge at the end of 2017, the cost in today’s money is much higher.”
- “Blockchain records are shared, making them hard to alter, so some users see them as super-secure. But in many ways they are no safer than any other software, Matt Suiche, who runs the blockchain security company Comae Technologies, said in a phone interview.”
- “And since the market is immature, blockchains may even be more vulnerable than other software. There are thousands of them, each with its own bugs. Until the field is winnowed to a few favorites, as happened with web browsers, securing them all will be a challenge.”
- “Many blockchains started as forks that diverged from existing crypto ledgers, and as Taiwanese security researchers have pointed out, every fork gives hackers a new way to try to falsify data.”
- “In a Dec. 25 paper, researchers at the Institute of Electrical and Electronics Engineers outlined ways hackers can spend the same Bitcoins twice, the very thing blockchains are meant to prevent. In a Balance Attack, for instance, hackers delay network communications between subgroups of miners, whose computers verify blockchain transactions, to allow for double spending.”
- Check out the photos / comments.
Cointelegraph – Bitconnect Ponzi Scheme – No Sympathy From Crypto Community – Gareth Jenkinson 1/19
NYT – When Trading in Bitcoin, Keep the Tax Man in Mind – Tara Siegel Bernard 1/18
Tech
Statista – Global PC Market Shrinks to Decade Low – Felix Richter 1/17
Environment / Science
FT – Home fuel blamed for 25% of India’s air pollution deaths – Kiran Stacey 1/11
- “Main cause of 1.1m annual toll is domestic burning of wood, coal or even cow dung.”
NYT – Warming, Water Crisis, Then Unrest: How Iran Fits an Alarming Pattern – Somini Sengupta 1/18
- “In short, a water crisis — whether caused by nature, human mismanagement, or both — can be an early warning signal of trouble ahead. A panel of retired United States military officials warned in December that water stress, which they defined as a shortage of fresh water, would emerge as ‘a growing factor in the world’s hot spots and conflict areas’.”
- “’With escalating global population and the impact of a changing climate, we see the challenges of water stress rising with time,’ the retired officials concluded in the report by CNA, a research organization based in Arlington, Virginia.”
China
FT – China births fall despite relaxation of one-child policy – Tom Hancock 1/18
Reuters – China’s Dalian Wanda Group says 2017 revenue down 10.8% – Clare Jim and Julie Zhu 1/20
South America
WSJ – Venezuela’s Oil Production Is Collapsing – Anatoly Kurmanaev and Kejal Vyas 1/18
- “Crude oil production fell 12% in December from the month before, according to government figures released Thursday. Over all of 2017, output was down 29%, among the steepest national declines in recent history, driven by mismanagement and under investment at the state oil company, say industry observers and oilmen.”
- “The drop is deeper than that experienced by Iraq after the 2003 war there—when the amount of crude pumped fell 23%—or by Russia during the collapse of the Soviet Union, according to data from the Organization of the Petroleum Exporting Countries.”
- “’In Venezuela, there is no war, nor strike,’ said Evanán Romero, a former director of government-run Petróleos de Venezuela SA. ‘What’s left of the oil industry is crumbling on its own’.”