Tag: Construction

April 12, 2018

If you were only to read one thing…

NYT – British Banks Will Have to Cut Ties to Sanctioned Oligarchs, U.S. Says – Ellen Barry 4/10

  • “The United States on Tuesday ratcheted up its efforts to block Kremlin-linked industrialists from doing business in the West, warning that British banks will have to sever their relationships with the tycoons if they want continued access to American financial institutions.”
  • “Sigal P. Mandelker, a top American Treasury official in London to meet with her counterparts, said British banks could face ‘consequences’ if they continued to carry out significant transactions on behalf of the 24 influential Russians sanctioned by Washington on Friday. The list includes the industrialists Oleg Deripaska and Viktor Vekselberg, along with Kirill Shamalov, who American officials have identified as President Vladimir V. Putin’s son-in-law.”
  • “The warning has resonated in London, which for decades has served as a haven for Russia’s wealthiest families. Russian investors own iconic British assets like the Chelsea Football Club and swaths of high-end London real estate, and they support thriving networks of lawyers, financial advisers and estate agents.”
  • “The new American sanctions expose financial institutions outside the United States to penalties if they ‘knowingly facilitate significant financial transactions’ on behalf of the listed Russian oligarchs.”
  • “The wording is similar to secondary sanctions imposed against Iran. These ‘essentially prohibit the individuals involved from taking part in the dollar economy,’ said Daragh McDowell, an analyst for Europe and Central Asia at Verisk Maplecroft, a consulting firm based in Bath.”
  • “It is likely to compel risk-averse British banks to cancel the Russians’ accounts altogether, said Brian O’Toole, a former senior official at the Treasury Department’s Office of Foreign Assets Control, which administers and enforces American sanctions.”

Continue reading “April 12, 2018”

March 8, 2018

If you were only to read one thing…

FT Alphaville – China’s household debt problem – Matthew C Klein 3/6

  • “The rapidity and size of China’s debt boom in the past decade has been almost entirely without precedent. The few precedents that do exist — Japan in the 1980s, the US in the 1920s — are not encouraging.”
  • “Most coverage has rightly focused on China’s corporate sector, particularly the debts that state-owned enterprises owe to the big four state-owned banks. After all, these liabilities constitute the biggest bulk of the total debt outstanding, and also explain most of the total growth in Chinese debt since the mid-2000s.”
  • “Chinese households, however, are quickly catching up. This is bad news.”
  • “The simple story of China’s debt boom is that government-backed companies borrow from government-controlled banks to pay for wasteful investments to support jobs and other political objectives. This creates lots of problems for China today and in the future, but it does have one virtue: the losses from centralized credit allocation can be distributed over a broad population over a long period of time.”
  • “Household debt is different. Borrowers are widely dispersed and lack political power. The lenders are often newer finance companies or loan sharks. Worst of all, there is essentially zero chance that additional household borrowing pays for productive investment. Some of China’s additional infrastructure and manufacturing capacity may prove valuable one day. Household debt probably won’t. Atif Mian and Amir Sufi have ably shown that increases in household borrowing tend to predict slower income growth and higher joblessness.”
  • “This chart is therefore cause for concern:”
  • “As of mid-2017, Chinese households had debts worth about 106% of their disposable incomes. For perspective, Americans currently have debts worth about 105% of their disposable incomes, on average. The difference is that American indebtedness has been basically flat the past few years after steady declines since 2007.”
  • “Chinese households have been experiencing rapid income growth by rich-country standards for a long time, but their debts have grown far faster:”
  • “Since the start of 2007, Chinese disposable household income has grown about 12% each year on average, while Chinese household debt has grown about 23% each year on average. The cumulative effect is that (nominal) income has slightly more than tripled but debts have grown by nearly a factor of nine. The mismatch has been getting worse recently, as can be seen in the kink in the pink line towards the end.”
  • “All this is finally starting to affect the aggregate debt numbers. Household debt in China is still small relative to the total — about 18% as of mid-2017 — but household borrowers are now responsible for about one third of the growth in total nonfinancial debt:”
  • “The problem is that households cannot service their debts out of GDP. Instead they have to rely on their meagre incomes. Since 2007 the share of Chinese national output going to households has ranged from as high as 46% to as low as 42% of GDP. (The rest of China’s national income is mostly captured by government-controlled enterprises and their elite managers.) The household share of income has dropped by about 1 percentage point just in 2017:”
  • “For comparison, disposable income in the US has tended to hover between 71% and 76% of GDP over the past few decades.”
  • “The trick for Beijing now is to bring non-productive investment down as rapidly as it can without causing unemployment to rise to dangerous levels. Because it has proven difficult to replace non-productive investment with productive investment (and, I have long argued, unrealistic even to expect it could happen), the only way to do so is to replace it with consumption. But levered consumption obviously cannot solve the problem of rapid debt growth, so rising consumption must be driven by rising household income, even as declining investment causes workers on investment projects to be fired. In the end this may be politically a difficult problem, but economically it is just an arithmetic problem about wealth reallocation.” – Michael Pettis

Perspective

CNBC – 42% of Americans are at risk of retiring broke – Jessica Dickler 3/6

© GOBankingRates

US Census Bureau – Irish-American Heritage Month and St. Patrick’s Day 2/6

Worthy Insights / Opinion Pieces / Advice

Business Insider – Underpaying drivers is ‘essential’ to Uber’s business model, according to a new study on low wages – Shona Ghosh 3/7

Economist – How the West got China wrong – Leaders 3/1

  • “It bet that China would head towards democracy and the market economy. The gamble has failed.”

FT – Forget flu, it’s time for your fake-news jab – Hannah Kuchler 3/6

  • “News literacy should be taught like sex and drugs education, to protect individuals and society as a whole.”

Medium – A Lack of Clarity is The Biggest Inhibitor of Progress Towards Your Goals – Srinivas Rao 3/5

Real Estate

WSJ – Daily Shot: Cresset Wealth Advisors – US Housing Price Change from Pre-Crisis Peak 3/7

WSJ – New York Housing Is Getting (Gasp!) More Affordable – Josh Barbanel 3/7

  • “Housing costs are taking a smaller bite out of the typical household’s monthly budget, according to a new U.S. Census Bureau survey that is conducted every three years. The survey also shows a record amount of new housing and the third-highest rental-vacancy rate since the bureau’s first survey in 1965.”

WSJ – That Much Prophesied Commercial Property Bust Still Hasn’t Happened – Esther Fung 3/6

  • “The delinquency rate for securitized loans in the commercial real-estate industry has dropped for eight consecutive months, defying expectations in recent years of a wave of defaults.”
  • “According to real-estate data provider Trepp LLC, the delinquency rate for real-estate loans in commercial mortgage-backed securities clocked in at 4.51% in February, down from 5.31% in the same period a year earlier. The rate hit an all-time high of 10.34% in July 2012.”
  • “Investors had been expecting an increase in defaults in 2016 and 2017 as the large volume of CMBS packaged during the 2006 to 2007 period reached maturity. But rising real-estate values, low interest rates and a surge of debt capital from insurers and other sources have allowed property owners to refinance or restructure their debts.”

Yahoo Finance – Foursquare CEO: There are 2 types of malls that are seeing growth – Melody Hahm 3/6

  • “While consumers are getting lured online by cost savings and the convenience factor, there’s still ample data on foot traffic into physical stores, said Foursquare CEO Jeff Glueck. In fact, he’s found that the rise in online shopping has largely affected middle-market malls. Malls serving high-end and low-end customers are actually seeing growth.”

Finance

WSJ – The New ID Theft: Millions of Credit Applicants Who Don’t Exist – Peter Rudegeair and AnnaMaria Andriotis 3/6

Cryptocurrency / ICOs

Bloomberg – Bitcoin Dives After SEC Says Crypto Platforms Must Be Registered – Camila Russo and Lily Katz 3/7

Construction

WSJ – Daily Shot: Change in Construction Producer Price Index 3/7

  • “US construction firms continue to struggle with rising materials costs. Higher steel prices will exacerbate the problem, especially for commercial property developers.”

Asia – excluding China and Japan

WSJ – In China’s Shadow, Communist Vietnam Links Arms With Old Enemy, the U.S. – Jake Maxwell Watts 3/2

China

WSJ – China’s Financial Reach Leaves Eight Countries Vulnerable, Study Finds – Josh Zumbrum and Jon Emont 3/4

Europe

WSJ – Daily Shot: FRED – European Central Bank Balance Sheet 3/7

Puerto Rico

WP – Exodus from Puerto Rico grows as island struggles to rebound from Hurricane Maria – Arelis R. Hernandez 3/6

March 2, 2018

Perspective

Economist – The hidden cost of congestion – Daily Chart 2/28

  • “In rich countries, city-dwellers lose nearly $1,000 a year while sitting in traffic.”

Tax Foundation – Sources of Personal Income 2015 Update – Erica York 2/27

Visual Capitalist – The World as 100 People over the last two centuries – Jeff Desjardins 2/28

WEF – These will be the world’s most populated countries by 2100 – Rob Smith 2/28

Worthy Insights / Opinion Pieces / Advice

Economist – Black Americans are over-represented in media portrayals of poverty – C.K. 2/20

  • “The poverty rate amongst black Americans, at 22%, is higher than the American average of 13%. But black people make up only 9m of the 41m poor Americans.”

FT – Millennials poorer than previous generations, data show – Sarah O’Conner 2/23

  • “Stagnant wages and rising house prices hit disposable income levels.”

NYT – Is Bitcoin a Waste of Electricity, or Something Worse? – Binyamin Appelbaum 2/28

  • “Money is supposed to be a means of buying things. Now, the nation’s hottest investment is buying money. And the investment rush is raising questions about whether one reason for the slow pace of economic growth in recent years is that the nation is busy distracting itself. While Bitcoin mining may not be labor intensive, it diverts time, energy and capital from other, more productive activities that economists say could fuel faster growth.”
  • “By a wide range of measures, America has a productivity problem. The economy is growing slowly, and almost 20% of adults in their prime working years are neither working nor trying to find work. Americans who do have jobs are less likely to start their own companies. Even the most basic kind of production is in decline. Americans are having less sex and making fewer babies.”

Real Estate

PBN – Hawaii homebuyers top nation with highest mortgage debt-to-income ratio – Janis Magin 2/28

  • “Homebuyers in Honolulu have the highest mortgage debt-to-income ratio in the nation, while homebuyers on Maui have a ratio that’s third-highest in the U.S., topped only by San Jose in California’s Silicon Valley, according to a report by the personal finance company SmartAsset.”
  • “Homebuyers in the Honolulu metropolitan area have mortgages worth 3.959 times their annual income, on average, according to an analysis of data from the Consumer Financial Protection Bureau.” 
  • “The data showed that Honolulu homebuyers have an average income of $131,639 and that the average mortgage is for $521,201.”
  • “Maui homebuyers in the Kahului-Wailuku-Lahaina metro area have an average income of $131,681, and the average mortgage there is $468,597, putting their mortgage-to-income ratio at 3.559.”
  • “By contrast, homebuyers in San Jose have an average income of $207,062 and an average mortgage of $740,693, giving them a ratio of 3.577.”
  • California had 17 of the top 25 cities with the largest mortgage-to-income ratios on the list, while Hawaii had two of the top three.
  • “Nationally, the average mortgage-to-income ratio was 2.119.”

WSJ – Retailers Post Strong Numbers – And Mall Shares Keep Falling – Esther Fung 2/27

  • “Prospect of higher interest rates a worry to shopping mall REIT investors.”
  • “While mall landlords generally have shown they are able to keep occupancy levels buoyant, there are growing concerns about pressure on rents and higher capital expenditures as they look to attract and retain tenants, many of which are shrinking their store footprints.”
  • “Recent comments by Starbucks Corp. Executive Chairman and founder Howard Schultz that he expects rents to fall also weighed on the retail property sector Tuesday.”
  • “’Over the last few weeks I have been in a number of U.S. cities and observed firsthand the abundance of empty storefronts across the country, in prime A1 locations,’ Mr. Schultz said in an email to Starbucks senior leadership team on Sunday.”
  • “’We are at a major inflection point as landlords across the country will be forced (sooner than later) to permanently lower rent rates to adjust to the ‘new norm’ as a result of the acute shift away from traditional brick-and-mortar retailing to e-commerce,’ he added.”

Energy

WSJ – Daily Shot: US Total Crude Oil Production 2/23

Finance

Bloomberg – Investing in Index Funds Is No Longer Passive – Dani Burger 2/27

  • “Passive has gotten so large that it’s killed everything in its path — including itself. Welcome to the ‘Passive Singularity‘.”
  • “There are now so many indexes that putting your money in an index-tracking fund is a move requiring an active decision, according to researchers at Sanford C Bernstein & Co. The industry’s growth has even forced active managers to focus on selecting indexes themselves — be that to invest in, or to benchmark against.”
  • “It’s the latest broadside from Bernstein’s team, which in 2016 labeled passive investing ‘worse than Marxism’. Investors so far aren’t paying heed: passive mutual funds and ETFs absorbed $692 billion last year, compared to $45 billion in outflows for active funds, according to data compiled Bloomberg Intelligence.”
  • “The Bernstein strategists base their conclusions around the millions of indexes in existence, which far surpass the number of single securities. Do a little math and the madness is clear: with 3,000 easily-investable stocks, the number of possible combinations to turn into an index is a Googol (that number, written out, would be 1 followed by 100 zeros.)”
  • “With nearly half of equity assets managed passively in the U.S., there’s no sign that investors will stop gravitating toward cheaper, index-tracking products. Bernstein’s new research wrestles with a world where passive is larger than ever, and active managers have to fight for the trust of their clients. The team concedes that ‘passive investing has been a great force for democratizing access to capital markets and reducing the costs to society of managing assets’.”
  • “But a massive bull market rally across equities and debt markets has left many investors blind to the risks, which smart asset allocation can help to mitigate, Bernstein said.”
  • “In January, investors added $25 billion to active ETFs and mutual funds while allocating $103 billion to passive vehicles, data from Bloomberg Intelligence show.”
  • “’By all means, investors should save money on implementation by using passive vehicles as part of their allocation,’ the strategists wrote. ‘But the myth of purely passive investment will be exposed by a low-return world.’”

Cryptocurrency / ICOs

WSJ – Daily Shot: Bitcoin 2/28

  • “Bitcoin has been much less volatile in the past few days.”

Health / Medicine

Our World in Data – Causes of Death – Hannah Ritchie and Max Roser Feb. 2018

Construction

WSJ – With Lumber in Short Supply, Record Wood Costs Are Set to Juice Home Prices – Benjamin Parkin 3/1

  • “A lumber shortage has pushed prices to record highs as builders stock up for what is expected to be one of the busiest construction seasons in years.”
  • “Builders say the higher lumber costs are making homes more expensive. Lumber prices started rising last year after fires destroyed prime forests and a trade dispute between the U.S. and Canada restricted supplies. Now a shortage of railcars and trucks is forcing builders to pay even more.”

  • “Prices are rising as lumber yards try to stock up ahead of what looks likely to be a busy building season this spring. A strong economy and tight supply of houses are heating up the home-building market. The number of new units under construction in the U.S. rose almost 10% in January, the Commerce Department said, as strong demand kept builders working through the winter. Permits for new homes, a sign of anticipated construction, also rose.”
  • “Material prices now rival labor shortages as builders’ main concerns, a National Association of Home Builders survey showed in January. Prices for common building varieties like spruce and southern pine are at or near records, according to price-tracking publication Random Lengths. March-dated lumber futures at the Chicago Mercantile Exchange hit a record of $532.60 per 1,000 board feet last week after climbing more than 50% in 14 months.”
  • “That run-up began with a trade dispute between the U.S. and Canada, which provides about a third of U.S. timber, leaving many dealers hesitant to restock at elevated prices. The Trump administration eventually instituted tariffs of 20% or more on Canadian sawmills.”
  • “Problems mounted. The worst wildfires on record hit Canada’s Pacific coast. Hurricane Irma temporarily closed mills in the forests of Florida and Georgia. And then came a shortage of railcars and trucks to transport timber from forests in places like the Pacific Northwest. Rates for flatbed trucks rose 24% in January from a year earlier, according to DAT Solutions LLC.”

February 22, 2018

Markets / Economy

Bloomberg – Walmart’s Margins Hit Record Low as Fight With Amazon Takes Toll – Matthew Boyle 2/20

WSJ – Daily Shot: FAANG Basket vs S&P 500 – Relative Performance 2/20

WSJ – Daily Shot: Consumer Staples SPDR ETF vs S&P 500 – Relative Performance 2/20

WSJ – Daily Shot: Vanguard Real Estate ETF vs S&P 500 – Relative Performance 2/20

  • Rising bond yields…

WSJ – Daily Shot: Shifting Tastes – Coca-Cola 2/21

Insurance

WSJ – Reinsurers Hit by Catastrophe Losses, Rising Competition – William Wilkes 2/19

Construction

WSJ – Daily Shot: CME Lumber Futures 2/20

Education

WSJ – Daily Shot: The Rise of the Jumbo Student Loan – Josh Mitchell 2/16

February 12, 2018

Perspective

WSJ – Tech Wealth Turns Attention to Affordable Housing in Seattle – Nour Malas 2/7

WSJ – Why Even ‘Ordinary’ Homes Sell for $500,000 Over the List Price – Nancy Keates 2/8

  • “Nowhere is demand more pent up than in the San Francisco Bay Area. In the past four months, 39 homes in Silicon Valley have sold for $500,000 or more over the listing price, says Mark Wong, a real-estate broker with Alain Pinel Realtors, based in Saratoga, Calif..”
  • “That figure includes a ‘lovingly cared for and well maintained home’ (read: not updated). The 53-year-old, three-bedroom, one-story house on 0.197 acre in West San Jose got 15 offers and sold to an all-cash buyer for $2.5 million—$815,000 over asking. A three-bedroom, 2,040-square-foot house in the Glen Park neighborhood sold in October for $2.6 million—nearly $1 million over its listing price of $1.675 million.”
  • “Seattle is another hot spot. Over the past year, the city has seen the greatest increase in the country in the share of sales above the asking price, surging to 52% of home sales in 2017 from 20% of sales in 2012, according to Zillow.”

Worthy Insights / Opinion Pieces / Advice

NYT – One Cause of Market Turbulence: Computer-Driven Index Funds – Landon Thomas Jr. 2/9

WSJ – BlackRock’s New Ambition Is a Sign of Froth – Aaron Back 2/8

  • “One can’t begrudge BlackRock for putting out its hand for a small slice of the money on offer. Even if the experiment somehow goes awry, it won’t make much of a dent in a company with $6.3 trillion of assets under management.”
  • “But the sheer imbalance between the supply of investable funds and suitable outlets for investment that gave rise to this move should ring some alarm bells for investors generally. At market tops when money is desperate to find a home, it often winds up in places it shouldn’t.”

WSJ – When Investing in Stock Makes You Feel Like Throwing Up and You Do It Anyway – Jason Zweig 2/9

Markets / Economy

Bloomberg Businessweek – The Breakneck Rise of China’s Colossus of Electric-Car Batteries – Jie Ma, David Stringer, Yan Zhang, and Sohee Kim 1/31

Real Estate

WSJ – Gig Economy Grows Up as Lenders Allow Airbnb Income on Mortgage Applications – Laura Kusisto 2/8

  • “Homeowners soon will be able to count income they earn from Airbnb Inc. rentals on applications for refinance loans.”
  • “A new program—expected to be announced on Thursday by Airbnb, mortgage giant Fannie Mae and three big lenders—will allow anyone who has rented out property on Airbnb for a year or longer to count some or all of that money as income.”
  • “The mortgages will be backed by Fannie Mae, an acknowledgment that Americans today increasingly are earning money through the ‘gig economy,’ such as renting out rooms or ride-sharing.”
  • “Initially, three lenders, Quicken Loans, Citizens Bank and Better Mortgage, will participate in the program. Fannie will evaluate the initiative and could decide over time to back mortgages from any lender that chooses to count Airbnb income in a refinancing, as long as the short-term rentals aren’t against local laws.”
  • “Still, the move raises worries about encouraging homeowners to borrow more based on the unpredictable tourism industry.”
  • “Executives at the three lenders said one crucial difference between the housing bubble and today is technology, which makes it easy to keep track of how much income homeowners are earning from Airbnb.”

WSJ – eBay Finds Unlikely Fans in Luxury-Home Sellers – Leigh Kamping-Carder 2/8

Energy

WSJ – Venezuela’s Pain is OPEC’s Gain – Spencer Jakab 2/9

  • “The cut in oil production engineered by OPEC and Russia is now in its second year, defying skeptics and helping to boost crude prices. But the cartel’s compliance owes a big debt these days to a single member: Venezuela.”
  • “A founding member of the Organization of the Petroleum Exporting Countries, Venezuela pumped only 1.64 million barrels a day last month, well below its 1.97 million barrel a day allocation, according to estimates by S&P Global Platts. That gap of 330,000 barrels a day is marginally more than the amount that the entire cartel is undershooting its 32.73 million barrel-a-day target.”
  • “Calling even the decline so far in Venezuela’s petroleum industry historic is almost an understatement. Just last year, output was down by almost 30%. In percentage terms, that is worse than in major producing countries that broke apart and saw their economies collapse, such as the former Soviet Union, and Iraq in 2003.”

Finance

FT – Investors resume their bets against market volatility – Robin Wigglesworth and Joe Rennison 2/8

Cryptocurrency

WSJ – Bitcoin’s Plunge Weighs on Coin Offerings – Paul Vigna 2/7

Construction

Economist – Wooden skyscrapers could be the future for cities – 2/1

  • Video

China

Bloomberg Businessweek – For China’s Wealthy, Singapore Is the New Hong Kong – Chanyaporn Chanjaroen, Keith Zhai, and Cathy Chan 2/6

  • “Hong Kong is starting to be eclipsed by Singapore as the favorite destination for the wealth of China’s rich.”
  • “At stake for banks in both cities is a huge pile of money. China’s high-net-worth individuals control an estimated $5.8 trillion—almost half of it already offshore, according to consulting firm Capgemini SE. For some, the city-state of Singapore is preferable because it’s at a safer distance from any potential scrutiny from authorities in Beijing, according to interviews with several wealth managers. Multiple private banking sources in Singapore, who would not comment on the record because of the sensitivity of the subject, report seeing increased flows at the expense of Hong Kong.”
  • “The rich may be feeling exposed by changing banking practices. Hong Kong has signed tax transparency agreements that for the first time last year required all banks to report their account holders’ information to Hong Kong tax officials, in preparation for giving that information to 75 jurisdictions, including mainland China. Singapore will have similar agreements with 61 jurisdictions. But they don’t include either Hong Kong or Beijing, meaning its accounts and account holders aren’t visible to the Chinese government.”
  • “Overall, Hong Kong remains the primary destination for China’s offshore money, according to a Capgemini survey, followed by Singapore and New York. Yet the number of Chinese high-net-worth individuals who view Hong Kong as their preferred overseas place of investment is down to 53%, from 71% two years ago, according to a survey in July by Bain & Co. More than 20% favor Singapore, up from 15% two years ago.”
  • “‘We see Singapore, not Hong Kong, as the bridgehead of China’s investment overseas,’ says Li Qinghao, co-founder of NewBanker Tech Consulting, which organized the Sentosa conference last year. About 78% of S$2.7 trillion ($1.9 trillion) in assets under management in Singapore comes from overseas sources.”

FT – Wealthy Chinese push racing pigeon prices skywards – Tom Hancock 2/8

  • “An elite group of Chinese pigeon fanciers have pushed the prices of racing birds to record highs, reflecting a mood of exuberance among China’s wealthy following a pick-up in economic growth and asset prices that has buoyed luxury spending.”
  • “Xing Wei, a property tycoon, paid €400,000 ($490,000) to purchase a Belgian pigeon called Nadine, in what is thought to be the largest deal on record. He followed that with a Rmb3m ($475,000) purchase of a champion bird called Extreme Speed Goddess at a Beijing auction in December.”
  • “Soaring pigeon prices are matched by bigger prizes for pigeon-racing competitions. China’s premier 500km ‘Iron Eagle’ race series held by the Pioneer International club in Beijing boasts a prize pot of Rmb450m ($71.2m).” 
  • “Higher property and equities prices helped the wealth of China’s 2,000 richest people increase nearly 13% last year, according the country’s top rich list. The number of people known to possess assets above $300m grew faster last year than any other in the previous decade, said Rupert Hoogewerf, the compiler of the list.”
  • “After years of declines following the anti-corruption campaign launched by President Xi Jinping in 2012, sales of luxury goods in China grew 20% last year, according to business consultancy Bain. Art auction sales in Shanghai saw 42% growth last year, according to consultancy ArtTactic.”
  • “Pigeon industry insiders say just half a dozen enthusiasts are responsible for largest sales. ‘Five years ago Rmb300-Rmb400 ($47 – $63) was a very high price for a pigeon,’ said Zhang Wangbin, who runs a club in the central city of Wuhan whose auctions this winter saw several birds sell for 10 times that amount. ‘It’s the result of economic development,’ he added.”
  • “Pigeons are not the only animals to catch the eye of China’s business elite, with Japanese Koi carp prices also seeing a China effect. Kentaro Sakai, president of the Sakai Fish Farm, Japan’s biggest Koi breeder, said a single fish could sell for up to ¥42m ($380,000).”

India

Bloomberg Quint – SBI Posts Surprise Loss A Provisions Surge, Treasury Income Falls – Vishwanath Nair and Azman Usmani 2/9

  • “State Bank of India Ltd. reported a quarterly loss for the first time in at least 17 years as its treasury operations turned unprofitable and provisions for bad loans increased. The public lender reported a significant divergence in bad loans from RBI’s assessment which weighed on the bottom line.”

Other Interesting Links

WSJ – Daily Shot: Number of Times a State has Hosted a Super Bowl 2/8

WSJ – CMO Today: Super Bowl Ratings Slump – Lara O’Reilly 2/6

January 25, 2018

Perspective

AZ Central – USA Today: Budweiser falls from top three U.S. beer favorites – Mike Snider 1/23

NYT – School Shooting in Kentucky Was Nation’s 11th of Year. It Was Jan. 23. – Alan Blinder and Daniel Victor 1/23

WSJ – Daily Shot: Vox – US Marijuana Laws 1/24

Worthy Insights / Opinion Pieces / Advice

The Mission – Why The Smallest Steps Towards Your Goals Become Giant Strides of Momentum – Tony Fahkry 1/23

Markets / Economy

WSJ – Price War Pressures Consumer-Goods Giants – Sharon Terlep 1/23

  • “Procter & Gamble said average prices fell for first time since 2011; rival Kimberly-Clark to slash jobs.”

Real Estate

WSJ – What’s a House Worth? Wall Street Turns to Drive-By ‘Appraisals’ – Ryan Dezember and Peter Rudegeair 1/22

WSJ – Big Landlords Pile Into Co-Working as WeWork’s Ascent Continues – Peter Grant 1/23

Cryptocurrency

Economist – Daily Chart: Crypto-currencies are in a tailspin 1/22

Bloomberg – Bitcoin May Split 50 Times in 2018 as Forking Craze Mounts – Olga Kharif 1/23

Construction

FT – US ‘constructech’ start-up raises $865m in SoftBank-led round – Richard Waters 1/24

  • “Katerra aims to transform homebuilding by applying precepts of electronics outsourcing.”
  • “The company, which operates from a factory in Arizona, already has $1.3bn of committed orders from developers and hopes to build another four or five facilities by the end of next year…”
  • Katerra hopes to drive down costs by ordering materials for multiple developments at once, giving it negotiating leverage over suppliers, and by developing manufacturing techniques to lower overall construction costs.”
  • “In one sign of its ambition, Katerra recently broke ground on an $85m factory in the US state of Washington that it said would be the world’s biggest maker of cross-laminated timber, a more ecologically friendly building material that is increasingly being used instead of concrete and steel.”
  • “The investment, which lifts the total amount Katerra has raised to almost $1.2bn, values the company at more than $3bn, including the latest round…”

December 22, 2017

Perspective

WEF – In 2020 Bitcoin will consume more power than the world does today – Adam Jezard 12/15

  • “Can the world afford Bitcoin? The cryptocurrency is enjoying something of a resurgence as investment and central banks weighed its benefits and caused its value to balloon.”
  • “But generating Bitcoin requires a truly staggering amount of energy. The electricity used in a single Bitcoin transaction, for instance, could power a house for a month.”
  • “And bitcoin mining (the process of generating a bitcoin) now consumes the same amount of electricity every year as Denmark – 33TWh, according to one recent report.”
  • Bitcoin mining’s energy use is reportedly growing at a rate of 25% per month. At that rate of growth, it will consume as much electricity as the US in 2019.”
  • And by 2020, bitcoin mining could be consuming the same amount of electricity every year as is currently used by the entire world.
  • “A new chain is created every 10 minutes or so and, according to a Business Insider article, the use of complicated and energy-intensive algorithms are part of a deliberate ploy to guarantee a degree of exclusivity.”
  • “The article quotes ING economist Teunis Brosens as saying a single Bitcoin transaction uses 200 kilowatt hours. ‘This number needs some context,’ he says, ‘200 kWh is enough to run over 200 washing cycles. In fact, it’s enough to run my entire home over four weeks, which consumes about 45 kWh per week costing €39 of electricity (at current Dutch consumer prices)’.”
  • “Bitcoin also uses a lot more power when compared with other transaction systems. A typical Visa card payment, for example, requires 0.01 kWh while another cryptocurrency, Ethereum, uses 37 kWh.”
  • “However, although Bitcoin is one of the worst examples of our profligate use of fossil fuels to create wealth, it is not alone. The whole digital world relies on power generation to run the data centers at the heart of the modern economy.”
  • “According to 2013 statistics, Google’s data centers used enough electricity to consistently power 200,000 homes, while the amount of power needed to run a large data center would run a small US town. And as we move to driverless cars and other data-intensive ‘internet of things’ technologies, the demand for energy will only increase.”
  • “It seems that businesses around the world are looking to a digital future while governments are talking of a more sustainable one: how to achieve both goals at the same time needs to be the subject of urgent discussion.”

US Census Bureau – Idaho is Nation’s Fastest-Growing State 12/20

WSJ – Daily Shot: CRFB.org – Largest US Tax cuts as percentage of GDP 12/21

Worthy Insights / Opinion Pieces / Advice

Economist – Free Exchange: A decade after it hit, what was learnt from the Great Recession? 12/16

Economist – Leaders: Bitcoin is a speculative asset but not yet a systemic risk 12/16

Economist – Leaders: America’s long-running economic expansion 12/16

NYT – Congress Refuses to Do Right by Children’s Health Care – Editorial Board 12/20

Markets / Economy

Bloomberg – U.S. Treasury Sales Are About to Double 2018. Who’s Buying? – Liz McCormick and Katherine Greifeld 12/19

  • “With the U.S. about to sell the most debt in eight years, Treasury Secretary Steven Mnuchin may find himself relying on a buyer base that needs to see higher yields before loading up.”
  • “Government debt sales are set to more than double in 2018, lifting net issuance to $1.3 trillion, the most since 2010, according to JPMorgan Chase & Co. estimates. With the Federal Reserve shrinking its bond holdings and deficits poised to swell even before taking into account the tax overhaul, all signs point to higher financing costs.”
  • “The challenge for Mnuchin is that some analysts predict buying by central banks — a pillar of support this year — may fade, in part as international-reserve growth stabilizes. In the view of Credit Suisse Group AG, that will put the onus on more price-sensitive buyers, particularly a group that the Fed classifies as including households, hedge funds, private-equity firms and trusts for wealthy individuals.”
  • “By Credit Suisse’s calculation, with the Fed pulling back and issuance surging, the slice of debt sales available for price-elastic buyers to absorb will rise to about 60% by the end of 2019, from 54% now. It would be their biggest share since the early 2000s.”
  • “The Treasury said last month that it expects to unveil bigger coupon auctions in February for the first time since 2009, and dealers see issuance rising for years to come. With entitlement costs heading higher, the U.S. debt burden was already projected to increase by $10 trillion in the next decade. Now the tax overhaul could boost the deficit by $1 trillion in the period.”
  • “JPMorgan’s 2018 net issuance tally of $1.3 trillion includes $847 billion of coupon debt, ballooning from an estimated $409 billion this year amid a darkening fiscal backdrop. The federal deficit may exceed $1 trillion by fiscal 2020, from about $666 billion in 2017, according to the most dire estimates by primary dealers. Meanwhile, the Fed could roll off about $250 billion of Treasuries in 2018.”
  • “The catch is that demand from China, which with almost $1.2 trillion of U.S. government debt is America’s biggest foreign creditor, may be about to ebb. The bulk of China’s buildup came as it boosted foreign-exchange reserves to help offset a strengthening yuan. But some forecasters see yuan stability in 2018, meaning limited need for currency intervention.”
  • “The wave of supply and the questions about demand come amid expectations for higher yields with the prospect of quicker U.S. growth and inflation. The Fed projects three more rate hikes in 2018, and firms including Goldman Sachs Group Inc. predict 10-year yields will rise to 3% in a year, from 2.46% now.”
  • “’There should be some overall repricing of yields higher, albeit modestly, on the back of the rising supply picture,’ said Subadra Rajappa, head of U.S. rates strategy at Societe Generale. ‘The amount of the supply increase will be quite large, and it’s not clear how much support is going to come from overseas’.’’

Finance

WSJ – Daily Shot: Bitcoin 12/20

  • “The Bitcoin rally has stalled for now, with prices falling to pre-futures launch levels.”

WSJ – Daily Shot: Fintech Startups Seek to Shake Up Money-Transfer Industry – Corinne Abrams 12/19

Construction

The Atlantic – The Weird, Wooden Future of Skyscrapers – Amanda Kolson Hurley – Dec. 2017

Asia – excluding China and Japan

NYT – Jakarta Is Sinking So Fast, It Could End Up Underwater – Michael Kimmelman 12/21

  • “Experts say Jakarta has only a decade to halt its sinking.”

India

Bloomberg Quint – Deepest India Bond Rout in 17 Years Shows No Sign of Abating – Kartik Goyal 12/21

South America

WSJ – Venezuela’s Brutal Crime Crackdown: Executions, Machetes and 8,292 Dead – Juan Forero and Maolis Castro 12/21

  • I imagine it will take two generations to recoup what they’ve lost from bad politics – if ever.

October 30, 2017

The tally is in – daily (or at least close to it).

Perspective

WEF – This chart might change how you think about migration – Frank Chaparro 8/29

How Much – How Trump Tax Rate Changes Affect You – Raul 10/22

Economist – Globalization has marginalized many regions in the rich world 10/27

Worthy Insights / Opinion Pieces / Advice

Bloomberg Businessweek – Italians Have Perfected the Art of Waiting It Out – Vernon Silver 10/18

Bloomberg Businessweek – Amazon Is Getting a Good Deal in Ohio. Maybe Too Good – Mya Frazier 10/26

  • “Amazon’s nine-figure tax incentives in Ohio have strained local public services as the state’s employment growth continues to lag the national average.”

Bloomberg View – Morningstar’s Star System Was Always a Bright Shinny Object – Barry Ritholtz 10/26

  • “Retail and professional investor alike seem to ignore the fact that every single document ever generated by any investment-related firm has a warning on it to the effect that ‘Past performance is not an indicator of future returns.’ Every chart ever drawn, each investing idea back-tested and every single historical comparison is testament to how little mind humans pay to that disclaimer.”

Bloomberg View – Think the U.S. Has a Facebook Problem? Look to Asia – Editorial Board 10/22

  • “…its platform exacerbates the potential for violence and social breakdown.”

Economist – Globalization’s losers: The right way to help declining places – Leaders 10/21

  • “Mainstream parties must offer voters who feel left behind a better vision of the future, one that takes greater account of the geographical reality behind the politics of anger.”
  • “Economic theory suggests that regional inequalities should diminish as poorer (and cheaper) places attract investment and grow faster than richer ones. The 20th century bore that theory out: income gaps narrowed across American states and European regions. No longer. Affluent places are now pulling away from poorer ones. This geographical divergence has dramatic consequences. A child born in the bottom 20% in wealthy San Francisco has twice as much chance as a similar child in Detroit of ending up in the top 20% as an adult. Boys born in London’s Chelsea can expect to live nearly nine years longer than those born in Blackpool. Opportunities are limited for those stuck in the wrong place, and the wider economy suffers. If all its citizens had lived in places of high productivity over the past 50 years, America’s economy could have grown twice as fast as it did.”

Economist – Why Airbus’s tie-up with Bombardier is so damaging for Boeing 10/19

Economist – Firms that burn up $1bn a year are sexy but statistically doomed – Schumpeter 10/21

  • “Consider Tesla, a maker of electric cars. This year, so far, it has missed its production targets and lost $1.8bn of free cashflow (the money firms generate after capital investment has been subtracted). No matter. If its founder Elon Musk muses aloud about driverless cars and space travel, its shares rise like a rocket—by 66% since the start of January. Tesla is one of a tiny cohort of firms with a license to lose billions pursuing a dream. The odds of them achieving it are similar to those of aspiring pop stars and couture designers.”
  • Investing today for profits tomorrow is what capitalism is all about. Amazon lost $4bn in 2012-14 while building an empire that now makes money.”
  • Tell that to the mom and pop shops that are crowded out because they have to be profitable.
  • “Most billion-dollar losers today are energy firms temporarily in the doldrums as they adjust to a recent plunge in oil prices. Their losses are an accident.”
  • “But a few firms love life in the fast lane. Netflix, Uber and Tesla are tech companies that say their (largely unproven) business models will transform industries. Two others stand out for the sheer persistence of their losses. Chesapeake Energy, a fracking firm at the heart of America’s shale revolution, has lost at least $1bn of free cashflow a year for an incredible 14 years in a row. Nextera Energy, a utility that runs wind and solar plants, and which investors value highly, has managed 12 years on the trot.”
  • “Collectively these five firms have burned $100bn in the past decade, yet they boast a total market value of about $300bn… The experience of the five suggests that bending reality today has three elements: a vision, fast growth, and financing.
  • “…Sustaining a reality distortion field is possible, but the longer it goes on for, the harder it gets. More capital has to be raised and, in order to justify it, the bigger the firm’s projected ultimate size—its terminal value—has to be.”
  • “A few firms other than Amazon have defied the odds. Over the past 20 years Las Vegas Sands, a casino firm, Royal Caribbean, a cruise-line company, and Micron Technology, a chip-maker, each lost $1bn or more for two consecutive years and went on to prosper. But the chances of success are slim. Of the current members of the Russell 1000 index, since 1997 only 37 have lost $1bn or more for at least two years in a row. Of these, 21 still lose money.”
  • “To justify their valuations, the five firms examined by Schumpeter must grow their sales by an estimated 8-33% each year for a decade. Based on the record of all American companies since 1950, and the five firms’ present revenue levels, the probability of this happening ranges between 0.1% and 25%, using statistical tables from Credit Suisse, a bank.”

FT – The downside of the race to be Amazon’s second home – Richard Florida 10/23

  • For Amazon to really make an impact, forgo the offered public incentives, among other things.

Markets / Economy

Bloomberg Businessweek – Under Trump, Made in America Is Losing Out to Russian Steel – Margaret Newkirk and Joe Deaux 10/25

  • “Foreign steel imports into the U.S. are up 24% in 2017. As the industry grows angry at Trump’s lack of trade action, Russia’s Evraz continues winning pipeline contracts.

WSJ – Daily Shot: Overstock.com 10/24

  • Overstock.com which has been languishing for some time now is on a tear since it announced an initial coin offering (ICO). I suspect that other companies that have been struggling for growth will follow.

WSJ – Daily Shot: Banca Monte dei Paschi di Siena 10/25

  • “Shares of the bailed-out Italian bank Monte dei Paschi resumed trading on Wednesday and promptly declined 70% from the last closing price.”

Real Estate

WP – America’s affordable-housing stock dropped by 60 percent from 2010 to 2016 – Tracy Jan 10/23

  • “The number of apartments deemed affordable for very low-income families across the United States fell by more than 60% between 2010 and 2016, according to a new report by Freddie Mac.”
  • “The report by the government-backed mortgage financier is the first to compare rent increases in specific units over time. It examined loans that the corporation had financed twice between 2010 and 2016, allowing a comparison of the exact same rental units and how their affordability changed.”
  • “At first financing, 11% of nearly 100,000 rental units nationwide were deemed affordable for very low-income households. By the second financing, when the units were refinanced or sold, rents had increased so much that just 4% of the same units were categorized as affordable.”
  • “’We have a rapidly diminishing supply of affordable housing, with rent growth outstripping income growth in most major metro areas,’ said David Brickman, executive vice president and head of Freddie Mac Multifamily. ‘This doesn’t just reflect a change in the housing stock.’”
  • “Rather, he said, affordable housing without a government subsidy is becoming extinct. More renters flooded the market after people lost their homes in the housing crisis. The apartment vacancy rate was 8% in 2009, compared to 4% in 2017. That trend, coupled with a stagnant supply of apartments, resulted in increased rents.”
  • “The study defined ‘very low income’ as households making less than 50% of the area median income, and ‘affordable’ rent as costing less than 30% of household income.”
  • “Most new construction of multifamily housing generally serves high-income renters, according to Freddie Mac. The corporation — along with Fannie Mae, another government-sponsored enterprise with a similar mission — significantly reduced its role in financing multifamily housing after the Great Recession.”
  • “Together, they had financed about 70% of all original loans for multifamily properties in 2008 and 2009 as private capital pulled back, said Karan Kaul, a research associate at the Housing Finance Policy Center at the Urban Institute. By the end of 2014, their market presence declined to 30%.”
  • “‘The affordability issues are becoming more severe at the lower end of the market,’ said Kaul, a former researcher at Freddie Mac. ‘Absent some kind of government intervention or subsidy, there is just not going to be any investments made at that lower end of the market.'”

Energy

FT –  US oil floated on cheap money – John Dizard 10/28

Construction

WSJ – Daily Shot: CME Lumber Futures 10/23

  • “Lumber futures are soaring in response to the NAFTA jitters. US home construction/renovation costs are sure to rise.”

Middle East

Economist – The boycott of Qatar is hurting its enforcers 10/19

  • “If Saudis and Emiratis will not trade with Doha, Iranians will.”

October 12, 2017

Perspective

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

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

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

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

Worthy Insights / Opinion Pieces / Advice

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

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

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

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

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

Markets / Economy

Economist – From Uber to kinder 10/7

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

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

Real Estate

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

Health / Medicine

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

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

Construction

WSJ – Daily Shot: NFIB Labor Quality 10/10

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

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

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

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

Shipping

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

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

Africa

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

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

September 26, 2017

If you were to read only one thing…

NYT – How Did Marriage Become a Mark of Privilege? – Claire Cain Miller 9/25

  • “Marriage, which used to be the default way to form a family in the United States, regardless of income or education, has become yet another part of American life reserved for those who are most privileged.”
  • “Fewer Americans are marrying over all, and whether they do so is more tied to socioeconomic status than ever before. In recent years, marriage has sharply declined among people without college degrees, while staying steady among college graduates with higher incomes.”
  • “Currently, 26% of poor adults, 39% of working-class adults and 56% of middle- and upper-class adults are married, according to a research brief published today from two think tanks, the American Enterprise Institute and Opportunity America. In 1970, about 82% of adults were married, and in 1990, about two-thirds were, with little difference based on class and education.”
  • “A big reason for the decline: Unemployed men are less likely to be seen as marriage material.”
  • “As marriage has declined, though, childbearing has not, which means that more children are living in families without two parents and the resources they bring.”
  • “’The sharpest distinction in American family life is between people with a bachelor’s or not,’ said Andrew Cherlin, a sociologist at Johns Hopkins and author of Labor’s Love Lost: The Rise and Fall of the Working-Class Family in America.”
  • “Just over half of adolescents in poor and working-class homes live with both their biological parents, compared with 77% in middle- and upper-class homes, according to the research brief, by W. Bradford Wilcox and Wendy Wang of the Institute for Family Studies. 36% of children born to a working-class mother are born out of wedlock, versus 13% of those born to middle- and upper-class mothers.”
  • “The research brief defined ‘working class’ as adults with an adjusted family income between the 20th and 50th percentiles, with high school diplomas but not bachelor’s degrees. Poor is defined as those below the 20th percentile or without high school diplomas, and the middle and upper class as those above the 50th percentile or with college degrees.”
  • “Americans across the income spectrum still highly value marriage, sociologists have found. But while it used to be a marker of adulthood, now it is something more wait to do until the other pieces of adulthood are in place — especially financial stability. For people with less education and lower earnings, that might never happen.”
  • “Evidence shows that the struggles of men without college degrees in recent years have led to a decline in marriage. It has been particularly acute in regions where well-paying jobs in male-dominated fields have disappeared because of automation and trade.”
  • “’A bad economy lowers the cost of having bad values — substance abuse, engaging in crime, not looking for a job right away,’ said Gordon Hanson, an economist at the University of California, San Diego, who wrote the paper with David Autor of M.I.T. and David Dorn of the University of Zurich.”
  • “Never-married adults cite financial instability as a major reason for being single, especially those who are low-income or under 30, according to a new Pew Research Center survey. Most men feel it’s important for a husband to be a financial provider, especially men without college degrees, according to another new Pew survey.”
  • “Women, meanwhile, have learned from watching a generation of divorce that they need to be able to support themselves. And many working-class women aren’t interested in taking responsibility for a man without a job.”
  • “’They say, ‘If he’s not offering money or assets, why make it legal?’’ said June Carbone, a law professor at the University of Minnesota and the author with Naomi Cahn of Marriage Markets: How Inequality Is Remaking the American Family.”
  • “While researchers say it’s stability, not a marriage license, that matters for children, American couples who live together but don’t marry are generally less likely to stay committed.”
  • Clearly changing this momentum will take a lot. From an improved economy to strengthened cultural supports. A recommendation from Mr. Wilcox – “a bigger emphasis in high schools and pop culture on what’s known as the success sequence: degree, job, marriage, baby. ‘The idea is that if people follow that sequence, their odds of landing in poverty are much lower.'”

Perspective

NYT – The Best Investment Since 1926? Apple – Jeff Sommer 9/22

  • “The iPhone helped to catapult Apple into its position as the world’s most valuable publicly traded company. But now Apple has another and, arguably, more exalted stock market distinction.”
  • “In the history of the markets since 1926, Apple has generated more profit for investors than any other American company.”

Worthy Insights / Opinion Pieces / Advice

WSJ – Ray Dalio and the Market’s Pulse – Andy Kessler 9/24

  • “The core of investing is quite simple: Determine what everyone else thinks, and then figure out in which direction they are wrong. That’s it. No one tells you what they think. You’ve got to feel it.”
  • “It’s all about figuring out what is priced into a stock right now. That’s the pulse of the market, the collective mind meld aggregated into stock prices. I know from experience this is the hardest part of running a hedge fund. You can find the greatest story ever, but if everyone already knows it, there’s no money to be made.”
  • “And the pulse changes with each government statistic, each daily ringing of cash registers and satellite images taken of parking lots. That’s why stocks trade every day. Real-world inputs and the drifting pulse drive the psychotic tick of the stock market tape. Once you feel the pulse, then and only then can you figure out how everyone’s wrong about tomorrow, next month or next year. And believe me, they’re always wrong. Stocks rarely tread water.”
  • “How do you find that pulse? It’s hard enough to invest your IRA. Can you image managing $160 billion?”

FT – Plentiful oil will sustain the age of hydrocarbons – Nick Butler 9/24

  • “The aggregate message is that there is no shortage. Sporadic spikes and volatility will be driven by political instability but demand can be supplied at a relatively high level for many years to come. Oil is not going away any time soon. That will comfort those companies that are unprepared for the energy transition but is more disturbing in terms of emissions and climate change.”
  • “David Howell, the UK’s former energy secretary, writes in the new edition of his fascinating book on energy policy that there is a fundamental conflict between different views of the energy future — what he describes as the Black and the Green. That conflict will shape the public debate on energy for a long time to come. The age of hydrocarbons is far from over.”

Bloomberg Gadfly – Harvard Should Ignore the Freshman Slump – Nir Kaissar 9/25

  • “It doesn’t take fancy consultants to spot the problem. Harvard abandoned one of the stalwart adages in finance: Pick an investment philosophy and stick to it. With its revolving door of chief executives, the endowment has been anything but stable.”

Inc. – 6 High-Performance Habits Only the Most Extraordinary People Share, Backed by Science – Jeff Haden 9/19

Markets / Economy

WSJ – Daily Shot: Consumer Staples Selloff 9/25

  • Consumer push back against food incorporated.

Examples…

WSJ – Daily Shot: General Mills, Inc Stock Price 9/25

WSJ – Daily Shot: Kellogg Company Stock Price 9/25

WSJ – Daily Shot: Kraft Heinz Stock Price 9/25

FT – The return of the stock picker – Robin Wigglesworth 9/24

Energy

Bloomberg – In World’s Hottest Oil Patch, Jitters Mount That a Bust Is Near – Dan Murtaugh 9/25

  • “Ups and downs are so ingrained in this business that crazy success in the Permian Basin is seen as an omen that a crash looms.”

Finance

WSJ – The Global Stock Market’s Hidden Juice – Paul J. Davies 9/24

  • “One common sign of trouble ahead is people borrowing heavily to buy equities.”
  • “Investors should be worried then that stocks are being supported by record amounts of margin debt, according to research released last week from the Bank for International Settlements, the Switzerland-based central bank for central banks.”
  • “These kinds of loans secured against stocks have often proved dangerous in a downturn because when share prices fall borrowers are forced to sell.”
  • “In the U.S., margin debt is more than three-times the level ahead of the 2008 crisis and is greater even than its peak in 2000 before the dot-com crash, according to the B.I.S.”
  • “However, lending volume alone isn’t a clear indicator of risk because equity values have increased, too. In the U.S. at least, lending as a share of market capitalization has been relatively steady for the past four years, most recently at 2.12%. But that level is much higher than the period before 2007 and above even the dotcom-era peak of 2.05%.”
  • “Rich clients’ desire to borrow against stocks has been stoked by the low interest rates and rising stock markets. It is attractive for banks, too. Lending against shares is seen as less risky than mortgages because stocks can be sold more quickly than a house, so banks can hold less capital against margin loans. Also, if the borrowed money is invested with the bank, rather than spent on yachts or cars, that boosts assets under management.”
  • “The banks themselves all say that while lending looks high, their own approach is conservative and the general competition for clients is less aggressive than in the past. But neither the banks nor their investors have a full view of leverage across the system and the risk that may pose.”
  • “Equities have to fall 20% to 30% before margin loans are underwater. That protects the banks, but doesn’t stop a wave of selling to repay debt when a downturn comes. That could spell real pain for everyone else.”

WSJ – Leveraged Loans Are Back and on Pace to Top Pre-Financial Crisis Records – Christopher Whittall 9/24

Construction

San Gabriel Valley Tribune – California construction workers are among the highest paid in the nation – Kevin Smith 9/24

  • “Construction workers in California are among the highest paid in the nation, according to figures from the Bureau of Labor Statistics.”
  • “Fixr.com, an online website that provides cost guides, comparisons and other information for people looking to do remodeling or repair projects, crunched the Bureau of Labor Statistics numbers to create a state-by-state ranking of average hourly wages for workers in the industry.”
  • “California landed 10th on the list of the 10 Highest Wage States, with average hourly earnings of $21.26. Connecticut and Washington ranked just above California with slightly higher pay, and Hawaii and Illinois were tied for the top slot. Construction workers in both of those states earn an average of $27.01 an hour.”
  • “Massachusetts, followed with $25.84 an hour and New Jersey ranked fourth with an average hourly wage of $24.05. Construction workers in Arkansas are hurting the most, according to the report, as their average wage is just $12.38 an hour.”
  • “The national average wage for construction workers is $18.22 an hour, which equates to $37,897 a year. In California, construction workers earn an average of $44,221 a year.”
  • “Mike Balsamo, CEO of the Building Industry Association of Southern California, isn’t surprised that California ranks near the top. But he said wages can be considerably higher for someone with specific skills and more experience.”

China

NYT – As China Piles on Debt, Consumers Seek a Piece of the Action – Keith Bradsher and Ailin Tang 9/25

  • Get Chinese citizens to adopt the consumer and debt habits of the Americans. This has always been the goal – at least for the MNCs (Multi-National Corporations) and it takes a burden off the central government in regard to boosting demand.

FT – China property developers dip on new sales restrictions – Hudson Lockett 9/24

  • “Hong Kong-listed developers saw share prices drop on Monday as investors reacted to new property sales restrictions imposed across eight major Chinese cities in response to rising house prices.”
  • “The cities of Changsha, Chongqing, Guiyang, Nanchang, Nanning, Shijiazhuang, Wuhan and Xi’an had all tightened controls on housing sales since Friday, with state news agency Xinhua stating most had banned sales within two to three years of purchase.”
  • “Authorities in Shijiazhuang imposed particularly strict limits, requiring home buyers to wait for five years before reselling property.”

Puerto Rico

NYT – Puerto Rico’s Agriculture and Farmers Decimated by Maria – Frances Robles and Luis Ferre-Sadurni 9/24

  • “There is no more agriculture in Puerto Rico. And there won’t be any for a year or longer.” – Jose A. Rivera, farmer
  • “In a matter of hours, Hurricane Maria wiped out about 80% of the crop value in Puerto Rico — making it one of the costliest storms to hit the island’s agriculture industry, said Carlos Flores Ortega, Puerto Rico’s secretary of the Department of Agriculture.”
  • “Plantain, banana and coffee crops were the hardest hit, Mr. Flores said. Landslides in the mountainous interior of the island took out many roads, a major part of the agriculture infrastructure there.”
  • “The island suffered a loss of $780 million in agriculture yields, according to the department’s preliminary figures. Hurricane Georges in 1998 wiped out about 65% of crops and Hurricane Irma, which only grazed the island, took out about $45 million in agriculture production.”
  • “Puerto Rico already imports about 85 percent of its food, and now its food imports are certain to rise drastically as local products like coffee and plantains are added to the list of Maria’s staggering losses. Local staples that stocked supermarkets, school lunchrooms and even Walmart are gone.”