Tag: Dalian Wanda

April 4, 2018

Perspective

FT – Naspers trims Tencent stake with $10bn share sale – Joseph Cotterill and Louise Lucas 3/22

  • “Naspers, the South African media company that is one of the biggest shareholders in Tencent, said that it would sell down part of its stake in the Chinese technology giant for the first time in almost two decades.”
  • “In a statement on Thursday, Naspers said that it would sell stock worth more than $10bn, equivalent to 2% of the shares in Asia’s biggest company by market capitalization, to fund investments elsewhere.”
  • “The transaction would reduce Naspers’ stake in Tencent, the world’s biggest gaming company and the owner of China’s WeChat and QQ social networks, from 33% to 31%.”
  • “Naspers added that it did not plan to sell any more of its Tencent shares for at least the next three years.”
  • “But even Thursday’s limited sell down is a landmark for what has been one of the most successful venture capital investments in history, and comes as Hong Kong-listed Tencent shifts strategy after years of explosive growth.”
  • Naspers’ investment of $32m in Tencent in 2001, now worth $175bn, powered its rise from a publisher and pay-TV operator to Africa’s biggest company by market capitalization.”
  • Approximately a 65.91% compound growth rate over 17 years. How do you like them apples?

Worthy Insights / Opinion Pieces / Advice

Forbes – Canadian Real Estabe Bubble Blowing Up North – Bob Haber 4/2

  • “According to the Real Estate Board of Greater Vancouver, single detached homes in Vancouver (on a local currency basis) have risen from approximately $400K CAD to $1.75 million CAD since 2002. That’s a 337% increase in 15 years. With incredibly fast rising prices, a large portion of the population is engaged in real estate brokerage, real estate development, construction, renovations, and everything that goes along with that. The echoes of Phoenix, Las Vegas, and San Diego from 2006 cannot be ignored.”
  • “…Taxation and interest rates are going higher. Cap rates on rentals or commercial properties are shockingly low (think 1% to 3% in most circumstances). In fact, Canada’s price-to-rent ratios are now well above what they were in the U.S. during the 2006 housing debacle. According to the Bank of Canada, 47% of Canada’s mortgages will reset in the next 12 months. To put that in perspective, a five-year fixed mortgage rate in Canada averages approximately 5.14%. This is 11% higher versus the 4.64% that it averaged for most of the past 2 years.”

NYT – Teachers in Oklahoma and Kentucky Walk Out: ‘It Really Is a Wildfire’ – Dana Goldstein 4/2

Markets / Economy

engadget – New York approves surcharge for Uber and Lyft rides in Manhattan – David Lumb 4/2

  • “As part of the budget that New York lawmakers passed last Friday, ride-hailing services and taxis face a new fee if they drive in Manhattan. These aren’t nickel-and-dime increases, either: Uber, Lyft and the like face a $2.75 charge for each ride, taxis get a $2.50 increase and group ride services like Via and uberPOOL will be charged $0.75 per customer. It’s meant to combat congestion and help fund subway repair and improvements, providing an expected $400 million per year going forward for the MTA.”
  • “Unsurprisingly, it’s already catching flak from customers and from taxi drivers, who have become far outnumbered by ride-sharing cars in the last several years. Of the 103,000 vehicles for hire in NYC, 65,000 are driven by Uber contractors alone, while taxis remain capped by law at 13,600, The New York Times reported. As a result, average traffic in Manhattan has slowed from 6.5 miles per hour to 4.7.”
  • “Other cities have enacted their own surcharges for ride-hailing services in recent years, but they are far lower than those New York just passed. Seattle instated a $0.24 charge for each trip in 2014, Portland, OR agreed to levy a $0.50 fee per customer in 2016, both of which funnel money collected toward regulating ride-sharing services. Chicago passed one in 2014 that will reach $0.65 this year and directs part of the funds raised toward public transit, much like New York’s will.”

FT – Walmart extends money transfer operation to 200 countries – Anna Nicolaou and Ben McLannahan 4/2

  • “Walmart is expanding its money transfer operation to 200 countries, the latest move in the retail giant’s slow but steady push into financial services.”
  • “Through the new scheme, people will be able to deliver money from Walmart’s nearly 5,000 US stores to locations abroad within 10 minutes, the company said.” 
  • “Arkansas-based Walmart first unveiled a money transfer service four years ago, allowing customers to send funds between its stores, and aiming to reach the “underbanked” — about 27% of Americans have limited access to traditional banking, according to the Federal Deposit Insurance Corporation. Walmart claims it has saved customers $700m in fees because it charges cheaper rates.” 
  • “The retailer has partnered with MoneyGram, one of the big wire transfer groups, to expand globally this month. The service will allow US residents to send money to countries such as Mexico, which received nearly $30bn in remittances last year, according to Mexico’s central bank.”
  • “Walmart’s push into money transfers comes a few months after it announced it was partnering with PayActiv and Even, two financial-technology firms, to offer its 1.4m US employees tools for money management and on-demand access to their earned wages.”
  • “The moves suggest the retailer may see itself as a partner of the big financial services companies rather than a direct rival going head to head with basic products such as checking accounts or credit cards.”

WSJ – Daily Shot: Political Calculations – Why Bad News for Big Tech Is Bad for Stocks 3/29

WSJ – Daily Shot: SPDR Americas – Equity Geographical Flows 4/3

WSJ – Daily Shot: Deutsche Bank – Drawdown Durations 4/3

Real Estate

FT – Manhattan apartment sales plunge – Lindsay Fortado 4/2

  • “The number of co-op and condominium sales in Manhattan fell nearly 25% during the first quarter compared to the same period last year, according to new research by Miller Samuel real estate appraisers and Douglas Elliman real estate brokers.”
  • “It was the largest annual decline in sales in nine years, according to the report.”
  • “The average sale price across Manhattan fell by 8.1% from the year-earlier quarter, and the average price per square foot also recorded a sharp decline, falling by 18.5% to $1,697.”
  • “Luxury apartment sales, considered the most expensive 10% of all properties, were hit particularly hard, as were new developments.”
  • “The average sales price of a luxury apartment fell 15.1%, down from $9.36m in the first quarter of 2017 to $7.94m in the first quarter of this year, and the number of sales was down 24.1%. The number of newly built apartments that went into contract fell 54%.”

WSJ – Daily Shot: Black Knight – Mortgage Equity 4/3

  • “Turning to consumer credit, how much borrowing capacity do households have against their homes? The answer is $5.4 trillion. $2.8 trillion of that capacity is with borrowers who have the highest credit scores.”

WSJ – Daily Shot: Black Knight – Hurricane-related mortgage delinquencies in Florida and Puerto Rico 4/3

Finance

WSJ – Daily Shot: Deutsche Bank – Countries with Negative-Yielding Bonds 4/3

Cryptocurrency / ICOs

Bloomberg – The Crypto Hedge-Fund Bubble Is Starting to Deflate – Olga Kharif 4/2

Tech

FT – Why south-east Asia’s politics are proving  problem for Facebook – John Reed and Hannah Kuchler 4/2

  • “One of the company’s fastest-growing markets is also one of its most complex where hate speech and political manipulation are making it hard to remain neutral.”

China

FT – China moves its factories back to the countryside – Emily Feng 4/2

  • “After decades of urbanization and rural neglect, China’s Communist party is seeking to revitalize the countryside, where wages and standards of living have stagnated compared with those of big cities.”

FT – Chinese developers seek piece of booming education market – Emily Feng 4/2

  • “When China’s premier Li Keqiang recently vowed progress on a property tax intended to rein in home prices, it signaled to the country’s real estate developers that more than a decade of double-digit growth would soon end.”
  • “Facing slowing growth in their core business, top developers are betting on the education market, building and operating international schools for tens of thousands of students.”
  • “The country’s three biggest property developers — Country Garden, Evergrande and Vanke — have seen sales slow in the first quarter of this year, according to an industry ranking compiled by research agency China Real Estate Information Corp. Meanwhile, home price growth has dipped following a clampdown on lending and property speculation.”
  • “That has already made a dent in developers’ financials. Dalian Wanda reported a revenue drop of almost 11% in 2017 while other residential developers are girding for longer-term impact. JPMorgan Chase has forecast as much as a 6% decline in mainland Chinese home sales this year.
  • “Now developers are ‘looking at other sectors in which to invest in order to get the returns that they need to continue growth’, says John Mortensen, regional director of real estate investment and management company JLL, which often works with universities.”
  • “Meanwhile, China’s education market is booming. The sector will grow from Rmb1.64tn ($261bn) in revenue in 2015 to Rmb2.9tn ($461bn) in 2020, according to Deloitte, with particularly high demand for English-language curriculums.”
  • “Amid fierce competition to get into good universities at home and overseas, proximity to a good school is often a key factor in determining Chinese property prices. A 2012 study of Shanghai housing found that prices were more than 40% higher in top-rated school districts.”
  • “That has prompted residential developers to build new complexes with schools within walking distance of apartments, hiring or building in-house education teams to recruit teachers and design bilingual curriculums.”
  • “Guangzhou-based Country Garden, China’s top residential developer by sales, is now also among the country’s biggest private education providers. Its education subsidiary, Bright Scholar, runs 52 bilingual international schools that each offer a full education from kindergarten to secondary school. Bright Scholar listed on the New York Stock Exchange last year, raising more than $150m.”
  • “Vanke Group, China’s second biggest residential developer by sales, set up its own education group in 2015 as part of a strategic shift aimed at offering a ‘full ecology’ to families.”
  • “Dalian Wanda is another property group with a growing interest in schools — its children’s education and entertainment group almost tripled its sales last year even as the group’s total revenues fell more than 10%.”

India

NYT – Jeweler to the Stars Flees as India Seethes Over Bank Fraud – Maria Abi-Habib 4/3

  • “About a week after Mr. Modi grinned for the cameras with the prime minister, a state-run Indian bank told regulators that it had found nearly $1.8 billion in fraudulent transactions linked to the jeweler’s account. Indian officials now accuse Mr. Modi, his family and business associates of assembling a global empire with nearly $3 billion in money obtained illegally, mostly from government-run banks. He denies wrongdoing.”
  • “For many Indians, the allegations against Mr. Modi further cement the notion that taxpayer-owned banks are footing the bill for the lavish lifestyles of a rising elite. That idea has particular resonance in a country where stark poverty — India is home to a third of the world’s poorest people — remains dire.”
  • “Just a decade ago, during the global financial crisis, Indian lenders were held up as a bastion of stability. Today, they are considered more vulnerable than those in other leading emerging markets, mostly because state-controlled lenders dominate the sector, according to the International Monetary Fund.”
  • “Of the $6.5 billion in fraudulent loans that have hit the industry over the past two years, the most egregious cases were at government-owned banks, according to figures released by Parliament. Executives at those lenders are more likely to be appointed for their political connections than for their talent, financial analysts say.”

Russia

FT – Russia plans ‘bad bank’ for $19bn in toxic assets – Max Seddon 4/2

  • “Russia’s central bank is to create a ‘bad bank’ to ringfence Rbs1.1tn ($19bn) in toxic assets from three nationalized top-10 lenders, vastly increasing the total bill for bailing them out.” 
  • “Vasily Pozdyshev, a deputy central bank governor, told Russian news agencies on Monday that the central bank would transfer assets from three collapsed banks into Trust, another failed lender.” 
  • “Taxpayers are footing the largest bank rescue bill in Russia’s history to fund the central bank’s takeover of three privately held banks last year to stave off a collapse in the sector.”
  • “The largest of them, Otkritie, was Russia’s biggest privately held bank by assets until it was nationalized in August. The central bank then nationalized B & N Bank, another top-10 lender, and Promsvyazbank to stop them from going under.” 
  • “Under Ms Nabiullina (Elvira Nabiullina, Russian central bank governor), the central bank is conducting an unprecedented clear-up of the sector under which it has wound down more than 300 banks since 2013. To rescue the three top-10 lenders, however, Ms Nabiullina had to create a separate bailout mechanism that allowed the central bank to take direct stakes in their capital.” 

FT – Russia’s $55bn pipeline gamble on China’s demand for gas – Henry Foy 4/2

  • “The pipeline is Russia’s most ambitious, costly and geopolitically critical energy project since the fall of the Soviet Union, and represents a $55bn bet on uncharted territory by the world’s biggest gas company.”
  • “Russia’s first eastern pipeline is the most striking physical manifestation of President Vladimir Putin’s diplomatic pivot towards China amid rapidly worsening relations with the west. It is the biggest and most critical element in a suite of energy deals, funding packages and asset sales that seek to warm a once frosty relationship.”
  • “For Gazprom, the Kremlin-controlled gas export monopoly behind the pipeline, the mega-project is the largest and most expensive in its history. When the taps are switched on in December 2019, the world’s largest gas exporter will be connected for the first time with its largest energy importer.”
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February 16, 2018

新年快乐

Xīnnián kuàilè

Perspective

WSJ – Daily Shot: Do You Live Among Millionaires? – Eric Morath 2/9

Worthy Insights / Opinion Pieces / Advice

FT – Five reasons why universal basic income is a bad idea – Ian Goldin 2/11

  • “As the scale of the potential job losses arising from the artificial intelligence and robotics revolution becomes clearer, a chorus of otherwise disconnected billionaires, trade unionists and others are calling for universal basic income. Recognizing the threat posed by these dislocations is welcome and timely, but seeking solace in UBI is a bad idea.”
  • “It is misleading to think of this as yet another industrial revolution and take comfort in the fact that all previous industrial revolutions have resulted in more and better-quality jobs. This time is different, both in the pace and the reach of change. The growth of new jobs is slower than the destruction of old jobs — and their quality in many cases is inferior, as full-time career employment gives way to gig work or contingency contracts.”
  • “The places most vulnerable are also geographically isolated from the dynamic cities experiencing record earnings growth and low unemployment. Moving to these cities is increasingly difficult, as soaring housing and commuting costs reduce employment mobility. The result is rising geographical concentration of poverty and inequality in places left behind by change. The political reverberations are already being felt. The legitimate concerns of vulnerable workers must be addressed. But UBI is a red herring for five reasons.”
  • Reasons 3 and 4:
  • “Third, UBI will undermine social cohesion. Individuals gain not only income, but meaning, status, skills, networks and friendships through work. Delinking income and work, while rewarding people for staying at home, is what lies behind social decay. Crime, drugs, broken families and other socially destructive outcomes are more likely in places with high unemployment, as is evident in the drug pandemic in the US.”
  • “Fourth, UBI undermines incentives to participate. Stronger safety nets are vital. No decent society should tolerate dire poverty or starvation. But for those who are able, help should be designed to get individuals and families to participate in society; to help people overcome unemployment and find work, retrain, move cities. Wherever possible, safety nets should be a lifeline towards meaningful work and participation in society, not a guarantee of a lifetime of dependence.”

FT – Where is the Tea Party when you need it? – Edward Luce 2/14

Project Syndicate – The Social Media Threat to Society and Security – George Soros 2/14

  • “It takes significant effort to assert and defend what John Stuart Mill called the freedom of mind. And there is a real chance that, once lost, those who grow up in the digital age – in which the power to command and shape people’s attention is increasingly concentrated in the hands of a few companies – will have difficulty regaining it.”

Markets / Economy

FT – Why the 30-hour work week is almost here – Simon Kuper 2/14

  • “Qualified jobseekers are scarce. Finally, workers can make demands.”

Real Estate

WSJ – Mall Dividends Soar Above 15%, Tempting Big Investors – Esther Fung 2/13

  • “Some mall operators are paying high dividends to offset the lackluster outlook for the sector.”

Finance

WSJ – Harvard, Hawaii Gambled on Market Calm – Then Everything Changed – Gregory Zuckerman, Gunjan Banerji and Heather Gillers 2/14

  • “Harvard, Hawaii and others, pressed to improve returns, made risky bets that depended on low stock-market volatility.”

WSJ – Daily Shot: VIX index 2/14

  • “VIX has finally moved below 20 as the inflation/high-rates ‘bogeyman’ no longer looks as scary (for now).”

Insurance

FT – MetLife hires investigators in search for missing pensioners – Alistair Gray 2/14

  • “US insurer MetLife has hired investigators to track down thousands of pensioners as the company seeks to resolve a scandal over missing payouts that has wiped about $10bn off its market capitalization.”
  • “Executives on Wednesday said they were doing ‘everything humanly possible’ to locate almost 13,500 people — owed on average $20,000 each — after they acknowledged MetLife failed to make proper efforts find them over 25 years.”
  • “The failure arose because of practices dating back to the 1990s at MetLife’s pensions ‘risk transfer’ business, under which companies transfer their retirement liabilities to insurers.”
  • “MetLife sought to contact eligible pensioners only twice: when they turned 65, and again a few months after the age of 70. If these efforts were unsuccessful, the company presumed the individuals would never be found.”
  • “As a result, the insurer mistakenly released funds from reserves that support future annuity payouts.”

China

FT – Wanda’s hopes for global lifestyle empire fade as it beats retreat – Emily Feng 2/14

  • “Dalian Wanda, the company Mr. Wang (Wang Jianlin) founded and transformed from a small-town real estate company into the world’s largest owner of cinemas and one of China’s biggest private property developers, has been steadily offloading assets over the past nine months.”
  • “The latest divestment came on Wednesday, when Wanda announced it had agreed to sell its 17% stake in Spanish football club Atlético Madrid.”
  • “The group says it will ‘refocus’ on its core business, domestic commercial property, including a plan to build or license 1,000 malls in China.” 
  • “This is a reversal for a group that invested roughly $22bn in offshore trophy assets over the past five years, according to data from Dealogic, as part of a push to bring a western lifestyle to an ever more wealthy Chinese middle class.” 
  • “In June 2017, the China Banking Regulatory Commission asked banks to examine loans to four companies known for offshore trophy investments, including Wanda, as Beijing pushed back on investments it deemed frivolous, excessive and out of line with the government’s development goals.”
  • “Wanda has pivoted sharply since the June crackdown. The group has sold about $10.8bn of assets in the past nine months, according to data from Dealogic and an FT review of recent transactions.”
  • “Debt pressures on Wanda are prompting the group to review its foreign investments, as Beijing’s capital controls restrict groups’ abilities to service their overseas liabilities.”
  • “Wanda says it is in talks with the country’s foreign exchange regulator, which had approved offshore remittances to service its loans but suspended clearance after Beijing launched its probe into the companies’ liabilities.”
  • “’The company’s financial resources — including cash proceeds from sales and cash balance — should be able to fulfil its onshore obligations. But the key now is how they can remit any onshore cash to offshore,’ says Dennis Lee, an associate director at rating agency S&P Global.”
  • “Mr. Lee adds that the group’s need for offshore cash is prompting Wanda to consider its options, including the sale of overseas properties.”
  • “The group also needs to maintain the confidence of investors. Total liabilities for Wanda were $11.7bn at the end of 2016, according to the group.”
  • “The strategy may be less glamorous, but Wanda’s year-end numbers suggest that its asset-light strategy is paying off. Even as overall revenues for its main property subsidiary plummeted by more than a fifth to $17.8bn last year, its revenue from rental income grew by about a third to $4bn, according to its results in January.”
  • “Despite the recent divestments, the group still retains its biggest offshore assets and Mr. Wang remains extraordinarily rich — Hurun estimates the wealth of Mr. Wang and his family at $23bn. Wanda is preparing for a Shanghai relisting of DWCP once its offshore debt is cleared, and that promises to be a major funding event.”

India

FT – Punjab National Bank discovers $1.8bn fraud in Mumbai branch – Simon Mundy 2/14

  • “Scam resulted in money being advanced to a handful of accounts overseas.”

January 31, 2018

Worthy Insights / Opinion Pieces / Advice

FT – Lex in Depth: the case against share buybacks – Dan McCrum 1/29

  • “S&P 500 companies have spent $1.1tn on share repurchase programs over the past two years, as executives struggled to turn modest economic growth into higher earnings. Lacking opportunities to invest, or at least shareholder support to do so, companies have spent money buying their own stock, which provides a boost to the size of profits reported per share.”
  • “Fresh records for buybacks are likely to be set, with changes to the US tax regime expected to trigger a repatriation of profits that have been held offshore for years.”
  • “A string of companies, including Boeing and Honeywell, have announced close to $90bn worth of share buyback programs since the reforms were agreed in December. Bank of America Merrill Lynch estimates that of $1.2tn parked overseas, perhaps half of the post-tax total, or around $450bn, could be devoted to share buybacks.”
  • “Shareholders are going to be banging on doors saying we want some of that money,’ says Howard Silverblatt, senior index analyst at S&P Dow Jones. No matter that stock markets have set record highs of late, the expectation that spare cash must be returned to its rightful owners is putting managers under pressure.”
  • “They almost have to buy when the stock is high. Timing the market is not something most companies can do,’ adds Mr Silverblatt. But the new flood of dollars raises an old question about whose interest the practice serves.”
  • McCrum does an excellent job of outlining some of the motives and outcomes of the practice. Some highlights:
  • “The only year in the past 14 when big US companies spent less on buybacks than dividends was 2009, when the S&P 500 index hit rock bottom. ‘The best time to do [a buyback] is in a recession, but that’s when everyone is scared stupid,’ says Andrew Lapthorne, a quantitative strategist for Société Générale.”
  • “If a company has more cash than it needs, and nothing better to invest in, it should consider whether buying its own stock is a good investment. Yet the time when companies have plenty of spare cash tends to be when business is good and shares are overvalued.”
  • “Apple has admitted that a primary purpose of its buybacks is to neutralize the impact of stock compensation.”
  • “The company has spent $151bn on repurchasing stock in the past decade, about 17% of its almost $900bn market valuation. The number of shares has dropped by about the same amount — 17%. Yet when Apple started to buy in 2012, the shares could be bought for half today’s price. The difference has been handed to employees.”
  • “Some companies have managed to spend more on buybacks in recent years than the shares are worth today.”
  • “Since 1995 IBM, the consulting and supercomputer group, has spent $162bn to repurchase more than half of its outstanding shares. What is left, for those who did not sell, is a company now valued at $154bn, suggesting the money was spent in the wrong place.”
  • “Any company will wonder what its valuation might have been, were different decisions taken. Prof Lazonick (William Lazonick, professor of economics at the University of Massachusetts Lowell) points to the example of Cisco Systems, the world’s largest networking company. In two decades it has spent $75bn repurchasing stock, more than three times the total for capital investment in property or equipment. A serial acquirer of other businesses, it has long struggled to grow sales.”

Markets / Economy

WSJ – Daily Shot: Trading activity at retail-focused brokerages 1/29

  • “Retail investor trading activity has accelerated recently. It’s starting to look like the late 90s.”

Real Estate

Bloomberg – Singapore Overtakes China as Largest Asian Investor in U.S. Property – Pooja Thakur Mahrotri 1/28

Bloomberg – Wanda Selling $5.4 Billion Property Unit Stake, to Seek Listing ‘Soon’ – Jing Yang De Morel 1/29

  • More on the Tencent investment below. However, wanted to call attention to…
  • “Separately, Wanda put its last two overseas property developments up for sale, according to people familiar with the matter, in the latest unwinding of a decade-long overseas buying spree that drew scrutiny from Chinese regulators. The group is seeking buyers for a hotel, office and apartment complex in Chicago and a development in Beverly Hills, California, said the people, who asked not to be identified because discussions are private.”
  • Presumably the Beverly Hills site is the “One Beverly Hills,” aka Robinson May, site that was previously purchased by New Pacific Realty Corporation for $33.5m in 2004, sold to the Candy Brothers for $500M in 2007, bought out of foreclosure by Hong Kong based Joint Treasure International for $148M in 2010 and then sold to Dalian Wanda for $420M in 2014.

CNBC – America’s 10 most valuable malls are bringing in billions in sales. Here’s where they are – Lauren Thomas 1/29

NYT – New York’s Hidden Home Buyer Closing Costs: Luxury Boxes and Mint Mojitos – Shane Goldmacher 1/29

Health / Medicine

Economist – America’s opioid epidemic is driven by supply 1/29

  • “A new study shows that economic factors do not fully explain the rising number of drug deaths.”

WSJ – Schools Close as Flu Epidemic Spreads – Tawnell D. Hobbs and Sarah Toy 1/27

  • “Schools in at least 11 states have closed as the worst flu epidemic in nearly a

decade intensifies.”

China

WSJ – Why Tencent’s Latest Property Deal Makes Sense – Jacky Wong 1/30

  • Reminds me of when the Japanese Keiretsu’s were buying stakes in each other.
  • In this instance Dalian Wanda benefits from an association with Tencent and Tencent picks up some real estate equity on the cheap (maybe).

January 23, 2018

Worthy Insights / Opinion Pieces / Advice

Bloomberg – This Rare Bear Who Called the Crash Warns Housing Is Too Hot Again – Prashant Gopal 1/22

FT – China’s VPN crackdown is about money as much as censorship – Lucy Hornby 1/21

  • “Curbs on internet access also serve to hand business to Chinese companies.”

Markets / Economy

NYT – Inside Amazon Go, a Store of the Future – Nick Wingfield 1/21

FT – IMF hails ‘broadest’ upsurge in global growth since 2010 – Chris Giles 1/22

  • “Forecasts upgraded for 2017, 2018, 2019, adding to positive mood ahead of Davos gathering.”

Real Estate

Bloomberg – WeWork Is Turning Its Offices Into Study Halls – Olivia Zaleski 1/22

  • “The co-working giant is teaming up with online education provider 2U to give online students places to study and collaborate.”

Energy

WSJ – Frackers Could Make More Money Than Ever in 2018, If They Don’t Blow It – Bradley Olson 1/22

  • “Oil companies, listening to investors, promise modest drilling as oil prices rise, but skeptics remain.”

Cryptocurrency

NYT – There Is Nothing Virtual About Bitcoin’s Energy Appetite – Nathaniel Popper 1/21

  • “In the virtual currency world this creation process is called ‘mining.’ There is no physical digging, since Bitcoins are purely digital. But the computer power needed to create each digital token consumes at least as much electricity as the average American household burns through in two years, according to figures from Morgan Stanley and Alex de Vries, an economist who tracks energy use in the industry.”
  • “The energy consumption of these systems has risen as the prices of virtual currencies have skyrocketed, leading to a vigorous debate among Bitcoin and Ethereum enthusiasts about burning so much electricity.”
  • “All of the computers trying to mine tokens are in a computational race, trying to find a particular, somewhat random answer to a math algorithm. The algorithm is so complicated that the only way to find the desired answer is to make lots of different guesses. The more guesses a computer makes, the better its chances of winning. But each time the computers try new guesses, they use computational power and electricity.”
  • “The lure of new Bitcoins encourages people to use lots of fast computers, and lots of electricity, to find the right answer and unlock the new Bitcoins that are distributed every 10 minutes or so.”
  • “This process was defined by the original Bitcoin software, released in 2009. The goal was to distribute new coins to people on the Bitcoin network without a central institution handing out the money.”
  • “Early on, it was possible to win the contest with just a laptop computer. But the rules of the network dictate that as more computers join in the race, the algorithm automatically adjusts to get harder, requiring anyone who wants to compete to use more computers and more electricity.”
  • “These days, the 12.5 Bitcoins that are handed out every 10 minutes or so are worth about $145,000, so people have been willing to invest astronomical sums to participate in this race, which has in turn made the race harder. This explains why there are now enormous server farms around the world dedicated to mining Bitcoin.”
  • “The rules have kept attackers at bay in the nine years since the network got going. Without this process, most computer scientists agree, Bitcoin would not work.”
  • “But there is disagreement over the real value of Bitcoin and the network that supports it.”
  • “Mr. de Vries, who keeps track of the use on the site Digiconomist, estimated that each Bitcoin transaction currently required 80,000 times more electricity to process than each Visa credit card transaction, for example.”
  • “The figures published by Mr. de Vries have been criticized by Mr. Bevand (Marc Devand, a miner and analyst) and other Bitcoin fans, who say they overstate the energy costs by a factor of about three. Many critics add that producing and securing physical money and gold also require lots of energy, in some cases as much as or more than Bitcoin uses.”

China

Axios – China’s “Belt and Road” infrastructure projects – Lazaro Gamio and Erica Pandey 1/19

By the numbers

  • “$1 trillion or more is the expected price tag, the New Yorker’s Evan Osnos reports. That’s seven times as costly as the Marshall Plan, on which the U.S. spent $130 billion to rebuild Europe after World War II.”
  • “70 countries will be involved in the initiative, Chinese news outlet Xinhua reports.”
  • “At least 36 planned or existing ports outside of China are involved.”
  • “$786 billion in trade took place between China and Belt and Road partners in the first three quarters of 2017, a 15% increase from 2016.”
  • “In Pakistan: China is partnering with Pakistan to build $60 billion worth of infrastructure as part of the initiative, CNBC reports.”
  • “In Thailand: The Chinese partnership with Thailand is expected to yield a 542-mile railroad, carrying high-speed trains that’ll move at up to 150 miles per hour, per CNBC.”
  • “In Malaysia: One Belt, One Road will spend about $40 billion on four railroad projects, per Xinhua.”
  • “The rise: The U.S. controls 24% of the global economy and China 15%, compared to 31% and 4% respectively in 2000.”

FT – Dalian Wanda pledges to clear overseas debt as revenues drop – Emily Feng and Lucy Hornby 1/21

  • “Chinese group’s turnover falls 11% on asset sales and credit squeeze.”

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’.”

January 8, 2018

Perspective

Visual Capitalist – Visualizing the Global Millionaire Population – Jeff Desjardins 1/4

Worthy Insights / Opinion Pieces / Advice

Bloomberg Gadfly – A French Challenge to Gundlach’s ‘Disaster’ Bond Theory – Mark Gilbert 11/17/17

  • “A record month for inflows into corporate bonds is ‘setting up a disaster for when rates rise & `investors’ learn that, yes, these bonds have rate risk’ was yesterday’s latest tweeted warning from Jeffrey Gundlach.”
  • “French utility Veolia Environnement SA is one of a handful of low-rated borrowers—assessed at BBB or lower by Standard & Poor’s—with fixed-rate debt repayable in three years or longer that trades at yields below zero in euros.”
  • “Veolia already has three-year paper that trades at a negative yield. Those bonds, however, were sold in 2005 at a yield of almost 4.5%; they dipped below zero for the first time last year, and recently turned negative once more.”
  • “But on Thursday, Veolia went one better by pulling off the neat trick of persuading investors to pay it directly to borrow, selling 500 million euros of bonds repayable in three years at a negative yield of 0.026%—’a first for a BBB issuer,’ the company trumpeted in a press release. What’s more, the sale was oversubscribed by more than four times.”
  • “Now, you could view the sale one of two ways. For the optimists, it provides evidence that investors are awash with cash and still confident that the European Central Bank’s bond-buying program will continue to support the market.”
  • “If, like Gundlach, though, you’re concerned that the world of fixed-income is in for a rude awakening and that the stress will first show up in the corporate bond market, you’ll probably view it as a last hurrah before reality hits home with a vengeance.”

FT – Iran and the oil price – Nick Butler 1/2

  • “Increasing oil exports would be an obvious way to fund more public spending.”

FT – Watch 10-year Treasury yields for signs of danger in 2018 – John Authers 12/29

  • “Investors should stay in stocks as a big bear market looks unlikely as early as 2018.”

Mauldin Economics – Outside the Box: Et Voila – Grant Williams 1/3

NYT – How Do You Vote? 50 Million Google Images Give a Clue – Steve Lohr 12/31

  • The more our world becomes ‘codified,’ the more insights will be derived, the less privacy we will have, and the more predictive the models will become…

WSJ – The Limits of Amazon – Christopher Mims 1/1

  • “The tech giant is very good at delivering what customers need, but is it as well positioned to sell them things they want?”

WSJ – Bitcoin Isn’t a Currency, It’s a Commodity – Price It That Way – Nathaniel Taplin 1/3

Real Estate

Housing Wire – Value of U.S. housing market climbs to record $31.8 trillion – Kelsey Ramirez 12/29

  • “The total value of all homes in the U.S. increased in 2017 to a total $31.8 trillion, according to the latest report from Zillow.”
  • “This is up from last year’s record high of $29.6 trillion, data from 2016 shows.”
  • “This is so high, that total homes in Los Angeles and New York City metro areas are worth $2.7 trillion and $2.6 trillion, respectively, the size of the U.K. and French economies.”
  • “This is an increase of $1.95 trillion over the past year, more than all of Canada’s GDP or two companies the size of Apple, Zillow’s report showed.”
  • “And renters are also now spending more money than ever before on housing, spending a record $485.6 billion in 2017. This is an increase of $4.9 billion from 2016.”
  • Renting in San Francisco is especially expensive as renters collectively paid $616 million more than renters in Chicago, despite having 467,000 fewer renters in San Francisco.
  • “Of the 35 largest U.S. markets, most home value growth occurred in Columbus, Ohio, which saw an increase of 15.1% to $152.3 billion in 2017.”

WSJ – You Got Priced Out of … Philadelphia? The Spread of Hot Housing Markets – Scott Calvert and Laura Kusisto 1/3

  • “The gentrification of the Fishtown neighborhood here looks like something city planners dream of, with developers renovating old row houses as young professionals, along with new restaurants and businesses, pile in.”
  • “But home prices have shot up so quickly in recent years that the latest wave of young professionals say they are having a hard time making the finances work.”
  • “Now several Philadelphia City Council members want to pass a law requiring property developers to set aside 10% of new projects as below-market units, to improve overall affordability in a city that once was among America’s biggest bargains.”
  • “Soaring housing costs aren’t confined to New York or San Francisco. Cities including Pittsburgh, Detroit, Buffalo and Nashville all have explored or adopted policies that, like Philadelphia’s, seek to create more cheap housing by an approach known as inclusionary zoning.”
  • “’It really underscores the housing-affordability problem is much more widespread than simply a problem in the 10 most expensive coastal cities,’ said Stockton Williams, executive director of the Terwilliger Center for Housing at the Urban Land Institute in Washington, D.C.”

WSJ – Private-Equity Funds Focused on Property Raising Less Capital – Peter Grant and Shefali Anand 1/4

  • “Private-equity funds that focus on real estate have been raising less money for the past few years, and chances are dim that there will be much pickup in fundraising in 2018.”
  • “But the reason for this trend isn’t that pension funds, endowments and other institutions that invest in private equity have lost their appetite for commercial property. A big part of the slowdown is that private-equity funds haven’t been able to spend all of the money they have raised, according to investors, analysts and fund managers.”
  • “The declining pace of fundraising and spending is partly due to the old age of the current real-estate cycle. Prices started rising in 2009 and remain near record levels in many cities, including San Francisco and New York, making it trickier to make new investments.”
  • “This is especially true for the most aggressive opportunistic private-equity funds that typically try to produce returns of at least 20%. Fundraising by these funds has fallen particularly sharply, dropping to $33.5 billion as of Dec. 27, compared with $43.8 billion in 2016 and $63.7 billion in 2015, Preqin said.”
  • “Still, the large amount of unspent cash sitting in the vaults of private-equity funds has been comforting to investors who are concerned the markets are due for a steep correction. As long as demand for property stays strong, prices are likely to remain healthy.”
  • “Green Street Advisors says that there was $136 billion of buying power sitting with private-equity firms and real-estate investment trusts at the end of 2017. That compares with about $120 billion at the end of 2016 and less than $80 billion at the end of 2011.”
  • “Another trend that some expect to accelerate in 2018: investors who buy stakes in real-estate fund managers. Dyal Capital Partners, which raises money to buy minority equity stakes in alternative asset managers, in 2016 purchased an interest in Starwood Capital Group.”
  • “Park Hill is seeing a number of large foreign investors who invest in real estate express an interest in buying into managers, Mr. Stark said. They are saying: ‘Rather than investing through some third-party manager, why don’t we buy into a manager,’ he said. ‘If you have enough capital you can leverage the talent and buy the machine, not just pay to rent one’.”

WSJ – Peak Commercial Real-Estate Prices Force Investors to Get Creative – Peter Grant and Shefali Anand 1/2

Finance

FT – Private equity turns to early loans to boost returns – Henny Sender 12/31

  • “Borrowed money improves fund rating on key metric of results over time but is risky.”

FT – How high-frequency trading hit a speed bump – Gregory Meyer, Nicole Bullock, and Joe Rennison 1/1

  • “Smaller volumes and a fall in market volatility have dented business – so much so that some are quitting.”

China

FT – China steps up capital controls with overseas withdrawal cap – Charles Clover and Tom Mitchell 12/31

  • Under the guise of preventing money laundering and terrorist financing, “China’s authorities have capped overseas withdrawals using Chinese bank cards at Rmb100,000 per year.”
  • “China has sought to limit foreign exchange purchases by its citizens in an effort to conserve forex reserves. The new measure plugs one of the few remaining ways Chinese citizens get money out of the country by broadening the Rmb100,000 ($15,400) limit from a single account to a single individual.”
  • “Previously, the annual limit of Rmb100,000 for overseas withdrawals was set for a single bank card.”
  • “An annual purchase limit of $50,000 worth of foreign currency per person remained unchanged, said the State Administration of Foreign Exchange (SAFE) in a statement on Saturday.”
  • “A regional currency analyst said that the move appeared to be a tightening of capital controls. ‘I was not expecting this since outflows have been slowing. But by doing this it clearly shows China’s desire to manage the outflows more aggressively, particularly on individual flows’ he said.” 
  • In other words, if you happen to make or to have made a meaningful amount of money in China, don’t plan on taking it home. It’s like a casino, the house always wins if you play long enough – especially, if you’re not allowed to leave the table with your chips.
  • The follow up question: will U.S. companies with meaningful overseas cash balances be allowed to repatriate funds in 2018 now that the U.S. tax laws have changed?

FT – Dalian Wanda to slim down ecommerce unit as it refocuses on core – Emily Feng 1/2

NYT – China Offers Tax Incentives to Persuade U.S. Companies to Stay – Sui-Lee Wee 12/28

Japan

FT – Japan Inc: a corporate culture on trial after scandals – Peter Wells and Leo Lewis 1/2

  • “Public admissions by some of the country’s greatest companies reveal deeper problems in how they are run.”

South America

WSJ – Cash-Strapped Venezuela Offers to Pay for Medicines With Diamonds – Kejal Vyas 1/4

  • “With hospital shelves bare and the government stumped on how to settle $5 billion in arrears to pharmaceutical companies, cash-strapped Venezuela recently offered some foreign suppliers alternative compensation: diamonds, gold and coltan, the rare metal used to make cellphones and Playstations.”
  • “While it isn’t clear if any of the companies accepted it, the proposal underscores how Venezuela’s economic collapse is forcing President Nicolás Maduro’s embattled administration to improvise to pay for goods as severe dollar shortages push the country toward a barter society.”
  • “Bartering is also creeping into daily street transactions for staples, partly because the government is too broke to print enough currency. The so-called Strong Bolivar, which the government created in 2008 by lopping three zeros off its previous currency, lost 97% of its value in 2017 alone as the oil-rich country plunges further into hyperinflation.
  • “Using commodities as payment isn’t uncommon for large global companies trading in mining or oil, but is almost unheard of as a way to settle debts to other sectors like pharmaceuticals, according to Caracas-based economic consultant Orlando Ochoa.”
  • “Given the country’s opaque finances, it isn’t clear how much Venezuela holds in certified precious metals and stones.”
  • “As for the Health Ministry’s proposal to pharmaceutical suppliers, ‘It feels like a bluff,’ Mr. Ochoa said. ‘It’s as if they want to show off their assets to give the illusion that there’s still an intention of paying even though they can’t pay’.”
  • “Lower crude prices and nearly two decades of profligate public spending have left Venezuela’s economy—once Latin America’s most prosperous—in tatters. Gross domestic product shrunk by more than 16.5% in 2016, according to the government, and there is scant evidence of improvement in 2017. The International Monetary Fund estimates inflation will top 2,000% in 2018. The government has defaulted on more than $700 million in bonds in recent months, spurring drastic cuts in imports that have resulted in chronic shortages of food and medicine.”
  • “Tito López, head of Venezuela’s Pharmaceutical Industry Chamber, says because companies in his sector haven’t received payments from the government in more than a year, 95% of medications that were available three years ago aren’t now. Antibiotics and treatments for chronic illnesses like hypertension and diabetes are among those hardest to find.”
  • In the past pharmaceutical companies operating in Venezuela have considered accepting bonds or even oil as payment, but the government has never followed through, Mr. López said. ‘What we’re missing is a serious system that actually guarantees payments,’ he added.”

December 14, 2017

Perspective

Visual Capitalist – Animation: Visualizing the ICO Explosion – Jeff Desjardins 12/12

WSJ – Thousands of Fake Comments on Net Neutrality: A WSJ Investigation – Paul Overberg and James V. Grimaldi 12/12

Worthy Insights / Opinion Pieces / Advice

FT – The twin trap for Tesla investors predicting the future – Vitality Katsenelson 12/12

  • “Fear of diluted stock remains, even if the electric carmaker becomes profitable.”

NYT – Quakes and Fires? It’s the Cost of Living That Californians Can’t Stomach – Conor Dougherty 12/12

The Real Deal – The Long View: HNA, Anbang and the myth of low leverage – Konrad Putzier 12/12

  • “New York’s real estate market now grappling with the Chinese debt binge.”

Markets / Economy

CNN – South Korea is going bitcoin crazy – Jake Kwon 12/12

  • “On any given day, South Korea accounts for as much as 20% of all bitcoin trades around the world.”

Real Estate

FT Due Diligence – M&A is the weapon of choice against Amazon for mall operators – 12/12

China

NYT – Artist Flees Beijing After Filming Devastation of Mass Evictions – Austin Ramzy 12/12

October 13 – October 19, 2017

The corporate drug industry has had many friends in Washington D.C. until now… Amazon is taking over the package room of your apartment building. China’s property boom unlikely to end anytime soon.

Headlines

Economist – The Philippine army recaptures a city seized by Muslim insurgents 10/17. After 5 months, the Philippine forces of President Rodrigo Duterte took back the city of Marawi on the island of Mindanao.

FT – Wanda golf courses closed in China austerity push 10/15. The two courses are in the $3bn Changbaishan resort in Fusong. The why – because new courses were banned in 2004; however, many developers were able to work their way around the rules…until now.

NYT – Kobe Steel Problems May Be More Widespread, Raising Fears on High-Speed Rail 10/12. So about that falsified data…we…didn’t…quite…tell…you…about…all…of…it…sorry.

WSJ – Nordstrom Family Suspends Effort to Take Retailer Private 10/16. That’s how strong the narrative is right now against the retail industry, even the Nordstrom family is having difficulty finding investors to fund the debt of the acquisition (despite the world being awash in cash and the tight spreads on high yield products).

WSJ – Hedge Fund Maverick Capital Debuts 0% Performance Fees 10/19. After losing 10% in 2016 and being down 2% so far this year (mind you that the market is up over the same time period), Maverick is offering some investors a 0% performance fee and 1% management fee on new money for its “recovery shares”.

Worthy Insights / Opinion Pieces / Advice

A Teachable Moment – Generation Kill – Anthony Isola 10/16

  • “Young people are killing their chances of building wealth.”

A Wealth of Common Sense – How to Invest At All-Time Highs – Ben Carlson 10/18

  • “The S&P 500 Index has recorded more than 150 new all-time highs since eclipsing its previous peak in late March of 2013. In 2017 alone, there have been 30 new record highs through the end of last week. To put this into perspective, there were only 13 new highs for the entire decade of the 2000s.”

BuzzFeed – Watching Harvey Weinstein Fall, Trump’s Accusers Feel Frustrated – Kendall Taggart & Jessica Garrison 10/14

Economist – Crafty app developers are ripping off big-name brands 10/12

  • Be careful which apps you load onto your phones.

FT – Under Xi Jinping, China is turning back to dictatorship – Jamil Anderlini 10/10

  • “The rejection of ‘western’ political systems has been made easier recently by what the Chinese see as the ludicrous buffoonery of Donald Trump and, to a lesser extent, the self-inflicted damage of Brexit and EU infighting.”
  • “As a top foreign policy adviser recently told one of my colleagues: ‘Trump never talks about democracy or American leadership or liberty — we should not be so stupid to worship things that in the western world are now in doubt.’”
  • Be cautious in your use of ‘private’ messaging services such as WeChat. Big brother is watching.

FT – Hollywood’s masculinity problem – the full picture – Kate Muir 10/12

FT – The implications of shelving the Aramco IPO – Nick Butler 10/14

FT – The disruptive power of renewables – Nick Butler 10/15

NYT – Stranded by Maria, Puerto Ricans Get Creative to Survive – Caitlin Dickerson 10/16

NYT – Inside a Secretive Group Where Women Are Branded – Barry Meier 10/17

  • Another example of the power of peer pressure and social learning.

Project Syndicate – The Psychology of Superstar Sex Predators – Raj Persaud & Peter Bruggen 10/19

The Guardian – Meet the new class traitors who are coming out as rich – Alissa Quart 10/16

The New Yorker – Carl Ichan’s Failed Raid on Washington – Patrick Radden Keefe 8/28

Perspective

How Much – The Largest Industry In Each State by GDP – Raul 10/9

WEF – Tech Insider: World Forecasted Population Growth – Gerald Chirinda 10/11

How Much – Can you Retire on $1 Million? Here is How Long You Can Survive in Every State… – Raul 10/12

Top 5 Friendly States for Retirement

  1. Mississippi  – $1 million lasts 25 yrs 6 months
  2. Arkansas – $1 million lasts 25 yrs
  3. Tennessee – $1 million lasts 24 yrs 5 months
  4. Kansas – $1million lasts 24 yrs 5 months
  5. Oklahoma – $1million lasts 24 yrs 4 months

Top 5 least Friendly States for Retirement

  1. Hawaii – $1 million lasts 13 yrs 1 months
  2. District of Columbia – $1 million lasts 14 yrs 2 months
  3. California – $ 1million lasts 15 yrs
  4. Oregon – $1 million lasts 16 yrs 7 months
  5. New York – $1 million lasts 16 yrs 7 months

VC – The Global Leaders in R&D Spending, by Country and Company – Jeff Desjardins 10/13

Pew – Share of counties where whites are a minority has doubled since 1980 – Drew Desilver 7/1/15

How Much – Best US Cities for Families to Save Money – Raul 10/16

The Best Places for Families to Save Money

  1. Spokane, WA; +$83,400
  2. Henderson, NV; +$59,100
  3. North Las Vegas, NV; +$56,600
  4. Las Vegas, NV; +$55,900
  5. Reno, NV; +$48,800

The Worst Places for Families to Save Money

  1. San Francisco, CA; -$62,300
  2. New York, NY; -$54,100
  3. Boston, MA; -$34,000
  4. Washington DC; -$22,200
  5. Philadelphia, PA; -$9,100

VC – How Many Hours Americans Need to Work to Pay Their Mortgage – Jeff Desjardins 10/17

The Republic – Phoenix is getting hotter – and so is the danger – Brandon Loomis 10/18

Pew – Amid decline in international adoptions to U.S., boys outnumber girls for the first time – Abby Budiman and Mark Hugo Lopez 10/17

Bloomberg – Smartphones Are Killing Americans, But Nobody’s Counting – Kyle Stock, Lance Lambert, and David Ingold 10/17

Markets / Economy

Bloomberg Businessweek- Dollar General Hits a Gold Mine in Rural America 10/11

Bloomberg – The Glut of Private Jets Means ‘Insane’ Bargains for Buyers 10/8

Bloomberg – One of the Biggest ICOs Yet Crashes Before It Even Launched 10/19

WSJ – This Market’s Running on Hope, Not Profits 10/12

WSJ – Daily Shot: Bitcoin 10/17

Bloomberg – JPMorgan, Citigroup Expect More Credit-Card Users to Default – Hugh Son, Dakin Campbell and Jennifer Surane 10/12

Real Estate

Bloomberg Businessweek – Distressed Investors Are Already Buying Houston Homes for 40 Cents on the Dollar 10/12

WSJ – Global Investors Pour Billions Into Hudson Yards in Major Bull Market Bet 10/17

WSJ – How Some Malls Manage to Stay Alive Years After Losing Their Mojo 10/17

WSJ – In London, Some Home Buyers Can Only Stay a Few Years 10/19

WSJ – Daily Shot: John Burns RE Consulting – US Housing Supply Overview 10/17

WSJ – Daily Shot: FRED – Multifamily Housing Units Under Construction 10/19

Finance

Economist – Buttonwood: The finance industry ten years after the crisis 10/14

WSJ – Daily Shot: Commonwealth of Puerto Rico GO Bond 10/15

  • “Puerto Rico’s general obligations (GO) debt keeps tumbling. The 8%-coupon bond ‘maturing’ in 2035 is trading at 33 cents on the dollar.”

WSJ – As Edward Jones Tops $1 Trillion in Assets, It Seeks Street Cred – Lisa Beilfuss 10/16

WSJ – Daily Shot: Corporate High-Yield Bond Spreads 10/18

Environment / Science

Economist – Offshore wind farms will change life in the sea 10/12

Bloomberg – There’s a Climate Bomb Under Your Feet 10/6

NYT – LIGO Detects Fierce Collision of Neutron Stars for the First Time – Dennis Overbye 10/16

Project Syndicate – Hurricanes’ Unnatural Toll 10/13

WSJ – Your Next Home Could Run on Batteries 10/15

Economist – Why the North American west is on fire 10/13

  • “The west of the United States has endured some 50,000 wildfires this year, and over 8.5m acres (3.4m hectares) have burned. Northern California has suffered in particular recently as flames have swept through parts of the landscape, killing at least 23 people and devastating wineries. In Canada, as of August 30th (the latest available figure), 7.4m acres had burned.”
  • “Ernesto Alvarado of the University of Washington, who specializes in large fires, says that historically portions of the forests of America’s north-west would burn every five to 20 years. In many areas, however, these fires have been suppressed for over a century by the needs of loggers and residents. Over time, undergrowth, saplings and dead trees accumulate, creating conditions in which a fire can spread very rapidly. Furthermore, a recent reduction in logging has led to an even closer packing together of trees. ‘To maintain good forest health in many of these forests, you need fire,’ says Dr. Alvarado. While some burns are prescribed, they are a fraction of what is required. In Washington, for instance, between 2001 and 2014 the Forest Service burned just 2% of the state’s 9.3m acres of forest.”
  • “In terms of scale, 2017 is not actually an outlier. In the past decade, wildfires have burned an average of 6.6m acres each year in the United States and 6.2m acres in Canada. The particular problem this year is the dispersed nature of the blazes.”
  • “The current state of the north-western forests, combined with the effects of climate change, increase the likelihood that wildfires will be worse in future… Little can be done to reduce the danger without a dramatic increase in prescribed burns, and these are unlikely as people continue to move into forested areas. One further consequence: the smoke and ash that drift across densely inhabited areas affect human health, too. A study by the universities of Harvard and Columbia of slash-and-burn fires in Indonesia in 2015 blamed the fires for 100,000 additional deaths and 500,000 injuries in Indonesia, Singapore and Malaysia. Where there’s smoke, there’s fire: this year’s haze presages years of potentially more ferocious burns.”

Asia – excluding China and Japan

NYT – U.S. Stood By as Indonesia Killed a Half-Million People, Papers Show 10/18

WSJ Video – Inside the Philippines’ Bloody War Against Islamist Militants 10/18

Canada

WSJ – Canada Imposes Tougher Mortgage Rules Effective 2018 – Paul Vieira and Vipal Monga 10/17

  • “Canada’s banking watchdog unveiled tougher mortgage-financing rules that take effect on Jan. 1 that real estate watchers and economists say could dramatically slow house buying and borrowing.”
  • “The most notable measure is a provision that would require all prospective buyers—even those with a down payment of over 20%—to undergo a so-called stress test before a bank can issue a loan. Previously, only buyers with a down payment of less than 20% had to undergo a stress test. Under the stress test, prospective buyers would have to qualify for a mortgage at a rate at whichever is greater: either 2 percentage points above the negotiated rate, or the Bank of Canada’s five-year benchmark rate. The central bank’s five-year rate stands at 4.89%. The regulator originally proposed the test just cover two percentages point above the negotiated mortgage.”
  • “Robert McLister, founder of the Canadian mortgage-rate comparison site RateSpy.com, said the new rules target the fastest-growing part of the mortgage market—uninsured mortgages—and could affect one out of every six prospective home buyers. In Canada, mortgage insurance is mandatory unless the buyer has a down payment of 20% and over.”
  • “’This is easily the most groundshaking mortgage rule of all time, and that’s not an understatement,’ Mr. McLister said in an interview.”
  • “Economists said the tougher mortgage regulations will further hit a softening housing market. Recent data from the Canadian Real Estate Association indicated unadjusted sales in September were 11% below year-ago levels, and price growth has slowed considerably, especially in the Toronto market after the introduction of a foreign-buyer’s tax in southern Ontario.”
  • “TD Bank’s economics team said it anticipates the measures will depress housing demand by 5% to 10% once fully implemented.”

China

FT – China’s $150bn debt-for-equity swap shows signs of fizzling 10/18

WEF – Deloitte: China will grow old before it gets rich – Alex Gray 10/6

WSJ – China’s Greatest Challenge – Anjani Trivedi 10/16

  • Debt…

  • NBFI = Nonbank Financial Institutions

FT – China residential property sales see first fall in 21/2 years – Hudson Lockett 10/18

  • Okay, but look at the volatility. Geez.

Japan

WSJ – Corporate Scandals Say More About Japan Than the Nikkei 10/12

WSJ – Daily Shot: Moody’s Investor Service – Decline of Japan’s Working Age Population 10/18

Middle East

Reuters – Saudi needs Aramco billions as recession slows austerity drive 10/19

FT – Qatar’s wealth fund brings $20bn home to ease impact of embargo – Andrew England and Simeon Kerr 10/18

  • “Qatar’s sovereign wealth fund has brought more than $20bn back onshore to cushion the impact of a regional embargo imposed on the Gulf state.”
  • “Ali Shareef al-Emadi, Qatar’s finance minister, told the Financial Times that Qatar Investment Authority deposits were being used to create a ‘buffer’ and provide liquidity in the banking system after the gas-rich state suffered capital outflows of more than $30bn.”
  • “That followed the decision by Saudi Arabia, the United Arab Emirates, Bahrain and Egypt to cut diplomatic and transport links with the nation in June. The move has triggered the Gulf’s worst crisis in years.”
  • “Moody’s, the rating agency, said last month that Qatar had injected $38.5bn into its economy since the crisis erupted.”

WSJ – Daily Shot: BMI Research  – Saudi Arabia GDP Change Year-over-Year 10/17

South America

FT – IMF crunches the numbers for possible Venezuela rescue 10/15

Featured

WP – The drug industry’s triumph over the DEA – Scott Higham and Lenny Bernstein 10/15

  • Let it be noted the power of this reporting resulted in Rep. Tom Marino withdrawing from consideration to lead the Office of National Drug Control Policy and it appears that the public is more aware of this problem…
  • “In April 2016, at the height of the deadliest drug epidemic in U.S. history, Congress effectively stripped the Drug Enforcement Administration of its most potent weapon against large drug companies suspected of spilling prescription narcotics onto the nation’s streets.”
  • “By then, the opioid war had claimed 200,000 lives, more than three times the number of U.S. military deaths in the Vietnam War. Overdose deaths continue to rise. There is no end in sight.”
  • “A handful of members of Congress, allied with the nation’s major drug distributors, prevailed upon the DEA and the Justice Department to agree to a more industry-friendly law, undermining efforts to stanch the flow of pain pills, according to an investigation by The Washington Post and ’60 Minutes.’ The DEA had opposed the effort for years.”
  • “The law was the crowning achievement of a multifaceted campaign by the drug industry to weaken aggressive DEA enforcement efforts against drug distribution companies that were supplying corrupt doctors and pharmacists who peddled narcotics to the black market. The industry worked behind the scenes with lobbyists and key members of Congress, pouring more than a million dollars into their election campaigns.”
  • “The chief advocate of the law that hobbled the DEA was Rep. Tom Marino, a Pennsylvania Republican who is now President Trump’s nominee to become the nation’s next drug czar. Marino spent years trying to move the law through Congress. It passed after Sen. Orrin G. Hatch (R-Utah) negotiated a final version with the DEA.”
  • “For years, some drug distributors were fined for repeatedly ignoring warnings from the DEA to shut down suspicious sales of hundreds of millions of pills, while they racked up billions of dollars in sales.”
  • “The new law makes it virtually impossible for the DEA to freeze suspicious narcotic shipments from the companies, according to internal agency and Justice Department documents and an independent assessment by the DEA’s chief administrative law judge in a soon-to-be-published law review article. That powerful tool had allowed the agency to immediately prevent drugs from reaching the street.”
  • “Political action committees representing the industry contributed at least $1.5 million to the 23 lawmakers who sponsored or co-sponsored four versions of the bill, including nearly $100,000 to Marino and $177,000 to Hatch. Overall, the drug industry spent $106 million lobbying Congress on the bill and other legislation between 2014 and 2016, according to lobbying reports.”

WSJ – Amazon and Big Apartment Landlords Strike Deals on Package Delivery – Laura Kusisto 10/17

  • “Amazon.com Inc. is taking over the package rooms of some of the country’s largest apartment landlords, in a move that could help consolidate its control over how goods make it from the warehouse floor to the front door.”
  • “Amazon has signed contracts with apartment owners and managers representing more than 850,000 units across the U.S. to begin installing Amazon locker systems in their buildings, according to the landlords. Amazon has commitments to install the lockers in thousands of properties, many before the peak holiday shopping season, according to a person familiar with the matter.”
  • “Several of the nation’s largest operators, AvalonBay Communities Inc., Equity Residential , Greystar and Bozzuto Group, have signed up, company executives said.
  • For several years, landlords have struggled with how to manage the mountains of packages they receive each day. Staff at larger buildings end up devoting several hours a day sorting mail, while boxes are piled in every spare cranny. Most say it is the single largest problem they face.”
  • “The locker program, dubbed Hub by Amazon, will accept packages from all carriers and not just for purchases made on Amazon. They will be open only to residents, not the wider community. Residents will receive a notification when they have a package and a code allowing them to open one of the slots.”
  • “Apartment owners pay about $10,000 to $20,000 to purchase the lockers initially and don’t pay a monthly fee. Most landlords said they don’t plan to charge residents initially but to offer it as an amenity. They could also make back some of that cost in savings on staff labor.”
  • “Karen Hollinger, vice president of corporate initiatives at AvalonBay, which has an ownership interest in about 80,000 apartments, said the average apartment community in the company’s portfolio receives some 1,000 packages a month, up from 650 a year ago. She said AvalonBay has seen a 20% to 30% annual increase in the volume of packages it receives for the past four years.”
  • “Amazon has been searching for ways to make deliveries cheaper. It has recruited a fleet of citizen drivers via its Flex program, which allows people to drop off packages from their cars. It has developed its own air and cargo networks, too.”
  • “The most expensive leg of any delivery is known as the last mile: getting a package to the doorstep. Amazon already has added lockers throughout the U.S., including an announcement that it is rolling them out at its newly acquired Whole Foods stores.”

FT – Chinese property boom props up Xi’s hopes for the economy – Tom Hancock & Gabriel Wildau 10/18

  • “As China’s Communist party elite gather in Beijing this week to select its top leaders, President Xi Jinping has benefited from the strong recent performance of the economy, which is poised for its first year-on-year acceleration in growth since 2010. On Thursday China reported that gross domestic product grew 6.8% in the third quarter, ahead of Beijing’s full-year target.”
  • “That rebound owes much to the confidence of homebuyers. Housing prices and construction starts rebounded from a slump in 2014-15, boosting overall business investment and driving demand for output from China’s huge manufacturing sector.”
  • “The property sector has been given a helping hand. Urged on by Beijing, 38% of all bank loans issued in the 12 months to August were home mortgages, according to official data, and local governments purchased 18% of all residential floor space sold last year as part of a drive to provide affordable housing, according to estimates by E-House China Research Institute.”
  • “The result has been another heady boom in construction. Rome was not built in a day, but based on residential floor area completed last year, China built the equivalent of a new Rome about every six weeks.”
  • “With the surge in housing investment has come a round of questions about a potential bubble in the market and the implications for the long-term health of China’s economy.”
  • “Some economists and investors warn that short-term growth from the latest housing boom has come at a cost: inflating a property bubble whose eventual bursting will inflict great pain. A senior Chinese legislator recently warned in unusually blunt terms that the economy has been ‘kidnapped’ by property.” 
  • “But others insist that fears of a bubble are overstated. On this view, economic fundamentals justify substantial investment in housing, especially in inland cities where development still lags far behind wealthy coastal areas. These more sanguine observers also note that outrageous price levels for Chinese apartments are mainly restricted to the megacities like Beijing and Shanghai.” 
  • “The stakes in this debate are high. Chinese residential property is arguably the world’s most important asset market. The sector drives global commodity prices, making the difference between growth and stagnation for resource exporters like Australia and Brazil.” 
  • “’It’s never wrong to express worry over China’s housing market,’ says Larry Hu, China economist for Macquarie Securities in Hong Kong. ‘But it’s interesting to consider why the housing sector has become the Bermuda Triangle for economic forecasters. So many smart people have made wrong predictions about it.’”
  • “The leading claim of the housing bears is that after a 15-year construction boom, China has built most of the housing it needs to meet fundamental demand. On this view, investors speculating on price gains, not families seeking shelter, now drive the market.”
  • “’People buy property not because they like the property, but because the price is rising,’ says Ning Zhu, professor at the Shanghai Advanced Institute of Finance and author of China’s Guaranteed Bubble. ‘It’s this panic that if they don’t buy now they will never be able to afford it.’” 
  • “Central to this narrative is the notion of ‘ghost cities’ — huge blocks of empty apartments where expected demand never materialized.” 
  • “In Mr. Xi’s speech at the opening of the congress on Wednesday, he repeated his mantra that ‘houses are for living in, not for speculation’.”
  • “Yet even in major cities, evidence suggests that there are a substantial number of empty flats held for investment purposes. A survey by FT Confidential Research, an independent research service owned by the Financial Times, found that 32% of families own at least one home that is vacant.” 
  • “An estimated 50m homes, or 22% of the total urban housing stock, were vacant in 2013, according to the most recent data from the China Household Finance Survey led by Li Gan, economics professor at Texas A&M University.” 
  • “Further underpinning the bearish outlook is the belief that fundamental demand for new housing is drying up.” 
  • “The extraordinary transformation of China’s economy over the past 40 years was driven by the migration of farmers into cities. That urbanization process is now slowing, however, as relatively few young people remain in rural China.” 
  • “The number of migrant workers living outside their home province rose by 12m in the five years through to June this year, compared with an increase of 26m in the five years ending June 2012, according to official data.” 
  • Says Mr. Xie (Andy Xie, an independent economist and former Morgan Stanley chief Asia-Pacific economist): ‘If you go into villages, there are no young and middle-aged people any more. Where is this next wave of urbanization supposed to come from?’”
  • “To longtime observers of China’s economy, the current hand-wringing over the property market feels familiar.”
  • “After two years of falling prices and sluggish sales, analysts were warning in early 2016 that some smaller cities had enough unsold inventory to last for years.” 
  • “Yet by August this year, inventories in the 80 cities tracked by E-House China Research Institute stood at their lowest level in almost five years.” 
  • “Perceptions of unreasonably high housing prices appear to be disproportionately influenced by trends in first-tier cities — Beijing, Shanghai and Shenzhen. All three rank among the world’s most expensive in terms of price-to-income ratio.” 
  • “Of the 70 cities in the official price survey, however, 12 have seen outright price falls in the three years through to August this year. In a further 29 cities, prices rose by less than 10% in the same period. Meanwhile, median per capital disposable income has grown 28% in roughly the same period.”
  • “Despite major concerns about Chinese corporate debt, household borrowing remains low by international standards at 37% of GDP, compared with 79% in the US and 59% in the euro area, according to the Bank for International Settlements. And Chinese homebuyers use less debt and more equity than counterparts in the US. The average down payment on Chinese home mortgages extended in 2016 was 40%.” 
  • Despite their differences, both sides in the debate mostly agree that an outright crash of the housing market is unlikely. Chinese savers have few options for investing their money. The stock market is volatile, returns on bank deposits are meagre and foreign exchange controls largely prevent households from buying foreign assets. Housing is the least bad option for many investors.” 
  • The combination of capital controls with years of monetary stimulus virtually ensures that ‘trapped cash’ will slosh through different asset classes, creating bubble-like conditions that the government either encourages or struggles to contain.” 
  • “Still, given the pain that would result from an abrupt policy shift, analysts widely expect that Beijing will continue the current approach, tightening controls when the market gets too hot, while priming it with cash when it slows too sharply.” 
  • “’The government is really losing its credibility,’ says Mr. Ning. ‘At this point everyone realizes they don’t really intend to crack down on the housing market.’

August 25, 2017

Perspective

FT – The great Silicon Valley land grab – Richard Waters 8/23

KFF.org – Medicaid and the Opioid Epidemic – Katherine Young and Julia Zur 7/14

Worthy Insights / Opinion Pieces / Advice

MarketWatch – Retailers aren’t hurting because people are buying ‘experiences’ instead of stuff – Rex Nutting 8/22

  • “The brick-and-mortar retail industry is in crisis. For many old-line retailers, sales and market share are plunging fast. The most obvious explanation for their distress is the rise of online shopping, but some analysts mistakenly point to another trend: ‘Shoppers are choosing experiences over stuff, and that’s bad news for retailers.’”
  • “Instead of purchasing a couch, we’re going to Paris! Or maybe buying avocado toast.”
  • “The reality is more mundane: We are spending a smaller portion of our budget at the mall, but the money we’re saving is mostly going for the most expensive health care in the universe.”
  • “If you’ve heard these stories about the shift away from material things and toward experiences, you might be shocked to learn that retail spending hit a record $1.4 trillion in the second quarter. Retail spending has increased in 30 of the past 33 quarters. We still love to buy stuff.”
  • “The problem for retailers is that prices are falling for many retail goods such as clothing, electronics, appliances, furniture, tools, luggage, toys and many other things. That is killing the bottom line for traditional retailers, who get less revenue per unit sale but still have to pay the fixed costs of rent and payroll.”
  • “For consumers, on the other hand, falling prices are a godsend, because we can buy even more stuff and still have some money left over to spend on other things.”
  • “It would be great if we really could afford to shift our spending from the boring things we need to the fun things we want, but in reality most of the money we are saving due to cheaper clothes and cheaper gasoline is going for goods and services that no one would call fun: hospital bills, financial services, rent, and prescription drugs.”
  • “Over the past 20 years, there has been a revolution in our spending patterns. Since 1997, Americans have shifted a significant portion of their spending from physical things like autos, clothing and petroleum to services like health care, rent and internet access.”
  • “At the margin, we are spending a little bit more on having fun than we did 20 years ago, but most of our money still goes for necessities, not experiences.”

Markets / Economy

WSJ – Global Economics Grow in Sync – Josh Zumbrun 8/23

  • “For the first time in a decade, the world’s major economies are growing in sync, a result of lingering low-interest-rate stimulus from central banks and the gradual fading of crises that over years ricocheted from the U.S. to Greece, Brazil and beyond.”
  • “All 45 countries tracked by the Organization for Economic Cooperation and Development are on track to grow this year, and 33 of them are poised to accelerate from a year ago, according to the OECD. It is the first time since 2007 that all are growing and the most countries in acceleration since 2010, when many nations enjoyed a fleeting snapback from the global financial crisis.”
  • “In the past 50 years, simultaneous growth among all the OECD-tracked countries has been rare. In addition to happening last decade, it has only happened in the late 1980s, and for a few years before the 1973 oil crisis.”

Finance

FT – What happened to the ‘too big to fail’ banks? – Patrick Jenkins and Ian Bott 8/23

China

FT – Back to the future for China tycoon sweepstakes – Gabriel Wildau 8/23

  • “To be a Chinese tycoon these days is to live with uncertainty: while some see their wealth and status rise meteorically, others fall out of favor with Beijing — with serious consequences for their wealth and freedom.”
  • “Led by chairman Hui Ka-yan, Shenzhen-based Evergrande has seen its share price almost quadruple this year. Shares in Sunac China, led by Sun Hongbin, have nearly tripled. The price rises have catapulted both up the ranks of China’s rich list.”
  • “By contrast, last year’s upwardly mobile tycoons, Wu Xiaohui of Anbang Insurance and Wang Jianlin of Dalian Wanda, who seemed to represent China’s future as a global investor as they snapped up foreign real estate and entertainment assets, are on the defensive.”
  • “’If you look at Sun Hongbin, he sells bonds offshore and brings the money onshore to build houses. It’s different from Wanda, which borrows from banks onshore to invest offshore. That’s much more sensitive,’ said Yang Guoying, researcher at China Financial Think Tank and a popular commentator on Weibo.”
  • “Offshore investors have a strong appetite for Evergrande’s high-yield debt, despite persistent warnings from analysts and short sellers that the group is highly leveraged. It is a high-risk bet that keeps paying off.”
  • “Evergrande’s net debt of $48bn at the end of last year was the highest among Chinese listed developers, according to data from Thomson Reuters.” 
  • “Tianjin-based Sunac ranked eighth with $8.8bn, and that was before its recent, largely debt-financed deal to buy 13 theme parks from Wanda for $6.5bn. Sunac has spent more than $17.5bn on acquisitions since the start of 2016, according to Dealogic.”
  • “’All these big private enterprises have something in common, which is that they’ve grown very big, very fast, and they’ve done it through debt sales and bank loans,’ said Ai Tangming, chief economics columnist for Sina Finance, a major domestic news website. ‘But Evergrande and Sunac have handled their government relations extremely well, and it’s paying off.’”

Europe

WSJ – Daily Shot: Euro Area GDP 8/24

August 23, 2017

Perspective

Visual Capitalist – Interactive: tableau – Visualizing Median Income For All 3,000+ U.S. Counties – Jeff Desjardins 8/22

Worthy Insights / Opinion Pieces / Advice

Bloomberg View – The Energy Revolution Will Be Optimized – Liam Denning 8/16

  • “The primary job of the 20th-century oil major or utility was to raise the capital required to build enormous energy production and distribution networks to feed industrialization. The onus was on providing ever more supply, since growth in demand was a given.”
  • “The latter no longer holds true. Energy efficiency matters more now, especially as concerns about pollution, including carbon emissions, have intensified. The job of the 21st-century energy provider, therefore, will be less and less about sheer quantity and more about both quality and smart consumption. Think software-as-a-service rather than just getting Windows 95 installed on as many desktops as possible.”

Markets / Economy

WSJ – How Retiring Baby Boomers Hinder U.S. Wage Growth – Eric Morath 8/21

  • “Departing older employees are being replaced by younger and cheaper workers, San Francisco Fed study finds.”

Real Estate

WSJ – The Price Isn’t Right for Home Builders – Justin Lahart 8/22

  • “Shares of home builders look pricey and vulnerable to a correction as costs rise and affordability is strained.”

Finance

FT – Here is the big reason banks are safer than a decade ago – Alan Smit and Martin Arnold 8/21

  • “The build-up to the financial crisis was marked by a rapid growth in wholesale funding, where banks borrow from one another and other financial institutions, rather than raising money through deposits from retail banking customers.”
  • “When the subprime mortgage meltdown began, banks lost faith in each other and those wholesale funding markets seized up.”
  • While western banks have backed off of it, “wholesale funding now accounts for more than a third of many Chinese banks’ total liabilities — three times as much as five years ago. Some analysts fear Chinese banks may yet generate another ‘Lehman moment’.”

China

FT – Dalian Wanda drops £470m London property purchase – Don Weinland and Judith Evans 8/22

  • “Chinese property developer Dalian Wanda has walked away from a plan to buy London’s Nine Elms Square amid mounting pressure from Beijing to curtail high-profile overseas acquisitions.”
  • “The 10-acre plot is part of London’s largest residential development site, where a number of real estate companies are building 20,000 mainly luxury homes south of the river Thames.”
  • “However, the land will still be acquired by Chinese buyers after a last-minute adjustment to the deal.”
  • “Hong Kong-listed Guangzhou R&F Properties stepped in to make its second hastily arranged deal involving Wanda in a matter of weeks. In July, R&F, which is based in the southern Chinese city of Guangzhou, agreed to purchase 77 Wanda hotels on the Chinese mainland.”
  • “R&F told reporters in Hong Kong that it bought the site jointly with CC Land, another Chinese property developer that this year acquired London’s ‘Cheesegrater’ skyscraper. R&F also owns the nearby Vauxhall Square site.”
  • “Wanda still owns the One Nine Elms site in the same area, which is slated for a 200-metre-high development that includes 437 homes and 3,584 sq ft of retail space, as well as one of the first Wanda Vista hotels to be built outside of China.”

Japan

FT – Japan looks to staunch regional student exodus – Leo Lewis 8/21

  • “Japan is planning an enrolment cap for Tokyo’s private universities to reverse a tide of ambitious 18-year olds eager to abandon the provinces and study in the capital.”
  • “The plan to clip Tokyo’s academic wings is part of a broader drive to protect regional economies from implosion — a fate some consider inevitable as the country’s population ages and shrinks.”
  • “Particularly acute, say government officials, is the ‘drastic decline in the population of 18-year olds’ — a group whose ranks not only want to study in Tokyo, but are increasingly keen to remain in the capital after graduating, to work.”
  • “To reduce Tokyo’s magnetism in an uneven economy, proposed regulation will place an indefinite ban on any private university within Tokyo’s 23 wards from applying for an increase to its annual intake of new students.”
  • “The plan’s success, say officials, hinges upon regional universities — and the job markets nearby — raising their game. ‘Universities have a major role in realizing regional revitalization but not many of them are that successful in driving structural changes in regional industry,’ said a report justifying the Tokyo quota cap.”
  • “The report, which recommended the cap come into force within the current fiscal year, which ends in March 2018, warned that unless Tokyo’s dominance was offset, regional university finances would deteriorate.”
  • “Regional revitalization policies have included encouraging bank mergers and legalizing casino gambling. But despite these policies, the annual number of 20-24 year old Japanese moving into Tokyo has risen 35% since Mr Abe became prime minister.”