Tag: Commodities

January 22, 2018

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.”

Business Insider – Some cryptocurrency traders in South Korea took the bitcoin ‘bloodbath’ to a whole new level – David Choi 1/18

  • 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’.”
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August 11, 2017

Perspective

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

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

Worthy Insights / Opinion Pieces / Advice

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

  • Sometimes less is more.

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

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

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

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

Markets / Economy

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

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

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

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

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

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

Britain

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

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

China

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

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

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

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

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

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

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

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

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

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

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

July 17, 2017

Perspective

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

Markets / Economy

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

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

Real Estate

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

South America

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

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