Tag: Energy

October 13, 2017

Perspective

NYT – Rohingya Recount Atrocities: ‘They Threw My Baby Into a Fire’ – Jeffrey Gettleman 10/11

  • Deeply disturbing.

WSJ – Daily Shot: OECD – Global Obesity Rates (2015) 10/12

FT – The 30-second ad has had its 15 minutes of fame – Shannon Bond 10/11

  • “The 30-second television ad has been dethroned. As US television networks face growing digital competition for marketing dollars and viewers’ attention, they are selling shorter ads. The result? Thirty-second spots, long the industry standard, now make up fewer than half of all US TV commercials.”

Worthy Insights / Opinion Pieces / Advice

WSJ – Say Goodbye to the China Bid – Aaron Back 10/12

  • “China’s seemingly insatiable demand for foreign assets has driven up prices for everything from U.S. Treasury bonds to global companies to luxury real estate. Now, a combination of market forces and capital controls are choking off the flow of Chinese cash. Asset markets around the world will have to adjust.”
  • “As Chinese exports boomed starting in the early 2000s and foreign investment flooded into the country, the central bank recycled these inflows into foreign government bonds, mostly Treasurys, to keep the yuan from rising. The buying persisted for over a decade, driving bond prices up and driving yields down globally.”
  • “The form of China’s foreign buying shifted in 2014, when the U.S. began exiting quantitative easing and China’s growth slowed. Ordinary Chinese feared that the yuan, which had steadily risen for years, would fall as growth slowed. Both individuals and companies rushed to get money out of China, snapping up trophy assets and luxury real estate around the world.”
  • “The China bid, or at least the expectation of one, sent prices of luxury properties soaring, fueled real estate bubbles from Vancouver to Sydney and pushed up prices of companies seen as desirable for Chinese buyers.”
  • “Alarmed by the outflow, Beijing began to tighten capital controls in 2015 and 2016, but the deal-making persisted until this year when the government cracked down on money transfers by individuals and discouraged companies from pursuing ‘irrational’ deals abroad. So far this year, outbound mergers and acquisitions by Chinese companies are down 27% from the same period a year earlier, according to Dealogic.”
  • “Now, pretty much the only thing the Chinese government encourages its companies to buy abroad are high-tech companies such as computer chip makers. But these strategic assets are precisely the kind that Western governments increasingly don’t want to fall into Chinese hands.”
  • “In real estate there is no way to say for sure how much Chinese buying drove up prices, but governments from Canada to Australia have moved to control foreign buying to rein in property bubbles.”
  • “Nor is China set to return as a big buyer of U.S. Treasurys. Indeed, if the Federal Reserve keeps tightening, China could be a seller of bonds as it fends off depreciation pressure on the yuan.”
  • “In the years ahead, financial markets around the world will have to live without the ever-present China bid. Whether China was a savvy investor or the dumb money, asset prices will likely be lower.”

WSJ – China’s Next Five Years – Squeezing the People to Feed the State – Nathaniel Taplin 10/11

  • “China achieved its economic miracle by unleashing the entrepreneurial private sector. With President Xi Jinping poised to further consolidate power at the Communist Party’s twice-a-decade leadership shuffle kicking off Oct. 18, the narrative of the next five years is becoming clear.”
  • “The state is pushing back.”
  • “The logic is straightforward. Nominally communist China relies on its vibrant private sector for growth, but state-owned companies are indispensable tools for political patronage, social control and economic policy. Any financial rot in the state sector could weigh on the economy and weaken the Communist Party’s grip.”
  • “With private business already commanding around 70% of the economy, Mr. Xi and his allies have decided to strengthen key state-controlled companies by boosting their market power and easing their debt burdens.”
  • “For investors, the implications are significant: higher global goods prices because state-owned companies are notoriously inefficient, and a smaller chance of the long-feared Chinese debt crisis. Corporate debt, which is largely in the state-owned sector, ticked down as a percentage of GDP in the second quarter, according to J.P. Morgan—the first decline since 2011. The trade-off is slower Chinese growth. Chinese banks, whose shares are currently on a tear, will need to keep subsidizing bloated state enterprises. And those enterprises’ need for a deep pool of capital inside China means a free-floating yuan will remain a distant dream.”
  • “For investors, the tilt back toward the state means that innovative privately owned tech and consumer companies may continue to outperform—but probably less so than in the past. Hulking state-owned titans, enjoying newly privileged market positions, may reward investors more reliably: The state-dominated Shanghai stock market has roundly outperformed the technology-and-consumer-focused Shenzhen market this year.”
  • “Deng Xiaoping, the grandfather of China’s economic reforms, famously said that it was acceptable to let ‘some people get rich first.’ The people are far richer than they were three decades ago. Now it’s the state’s turn once again.”

Forbes – How Blockchain Can Stamp Out China’s Fake Diplomas 10/8

NYT – We’re About to Fall Behind the Great Depression – David Leonhardt 10/12

Markets / Economy

WSJ – Daily Shot: Moody’s – U.S. States General Obligation Debt Ratings 10/12

Real Estate

FT – Airbnb teams up with developer to launch branded apartments – Leslie Hook 10/12

  • “Airbnb is stepping up its challenge to traditional hotel operators, launching branded, purpose-built apartments in Florida in a tie-up with a US real estate developer.”
  • “The partnership with Newgard Development Group marks the first time the San Francisco-based home-sharing group has worked with a property developer. It underscores how Airbnb is expanding beyond simply booking accommodation, its core service that has already hit hotel operators in cities across the world.”
  • “The 300-unit rental complex in Kissimmee, Florida, near Orlando, will be built and owned by Newgard but carry a new brand: ‘Niido powered by Airbnb’.”
  • “Harvey Hernandez, chief executive of Miami-based Newgard, said the company planned to build 2,000 Airbnb-branded units in the next two years. Tenants who rent the apartments can choose to sublet them through Airbnb for up to 180 days a year.”
  • “The Kissimmee apartment building, due to open early next year, includes features such as keyless doors and secure storage that will make it easier for long-term tenants to rent out their rooms when they are away. Through an app, tenant hosts can manage their Airbnb guests’ stay and even co-ordinate services such as changing bedsheets.”
  • “It will have human touches as well. A ‘master host’ will be on site, and all apartments will have a mandatory cleaning service, in the style of a serviced apartment.”
  • “’The demographic that we are targeting are travelling more than ever before,’ said Mr Hernandez. ‘So when that property is empty, they can be making money with it.’”
  • “Newgard, Airbnb and the tenant will all derive revenue from the short-term rentals, with Newgard taking 25% of the nightly room rate, Airbnb taking 3% (the same commission it charges hosts anywhere), and the tenant receiving the remainder.”
  • “Marriott operates serviced apartments whereby it does not own the property but the building carries its branding and Marriott provides hospitality services. Unlike Marriott, Airbnb will not operate the hospitality services and nor is it charging Newgard for the use of its brand.”

Bloomberg – Kushners’ Manhattan Tower on Track for Its Worst Year Since 2011 – Caleb Melby 10/12

Energy

FT – Why the US east coast imports oil despite shale boom – Gregory Meyer 10/11

  • “The US has been shipping its shale oil riches to different parts of the world, including Canada and India, inspiring White House officials to muse about American ‘energy dominance’. But one place that is buying very little of this crude is the officials’ backyard.”
  • “Last week as the US reported a record 2m barrels a day in crude oil exports, refineries located up the highway from Washington on the east coast imported about 900,000 b/d, mainly from Africa.”
  • “A big reason is the Jones Act, a 97-year-old US law that requires all ships starting and ending their voyages on US coasts to be American-flagged, built and crewed.”
  • “What animates critics in the oil market about the Jones Act is that it increases the cost of shipping crude from the Gulf coast to the east coast above the rate charged by foreign-flagged carriers. That helps incentivize exports from Texas oilfields and imports by refiners in the east. The reliance on shipping reflects the fact that no crude oil pipelines link the oilfields of the central US to the east coast.”
  • “’It’s basically a constraint on the efficient operation of the oil market,’ says Sandy Fielden, director of research for commodities and energy at Morningstar.”
  • “US lawmakers liberalized trade in crude oil in December 2015, allowing unfettered exports after years of tight restrictions for every destination but Canada. They let the Jones Act stand, though they gave some refiners temporary tax relief related to oil transport costs.”
  • “The effects are plain to see. In 2015, tankers laden with crude oil from the US gulf coast delivered an average of 50,000 b/d to ports on the US east coast, according to ClipperData, a vessel tracking service. The volumes nearly halved in 2016 and have halved again this year, the data show.”
  • “Ending the export ban has caused shipments to soar to countries previously blocked from buying US oil, including long hauls to Asia. Crude oil exports to countries other than Canada are averaging about 325,000 b/d this year, ClipperData’s records show, more than treble the levels of 2015.”
  • “Meanwhile, US east coast refineries near Philadelphia and New York have been importing nearly 1m b/d from countries such as Nigeria and Angola, about 50% higher than two years ago.”
  • “The increased imports to the east coast come despite falling rates to hire a Jones Act tanker as the industry struggles with a surplus of ships built before the export ban was lifted. The US fleet of Jones Act tankers and tugboat-barge units totals 94 vessels, according to Overseas Shipholding Group, one of the biggest operators in the sector.”
  • “Sam Norton, chief executive of OSG, estimates the cost of hiring one for crude service is about three to four times higher than using a foreign-flagged vessel. Some shipping consultants say it is even higher.”
  • “The Jones Act is unlikely to abolished, despite the longstanding efforts of politicians such as Senator John McCain of Arizona.”
  • “’Since people have been living with it for so long, it’s difficult to say what it would be like if they changed it or if it were repealed,’ says Mr Fielden of Morningstar.”

Environment / Science

NYT – 10 Hurricanes in 10 Weeks: With Ophelia, a 124-Year-Old Record is Matched – Maggie Astor 10/11

  • “With Tropical Storm Ophelia’s transition to Hurricane Ophelia on Wednesday, 2017 became the first year in more than a century — and only the fourth on record — in which 10 Atlantic storms in a row reached hurricane strength.”

China

FT – Wanda’s Wang Jianlin dethroned from top of China rich list – Tom Hancock 10/11

WSJ – Six Reasons Why China Matters – Justin Lahart 10/11

NYT – China to Debtors: Pay Up or Be Shamed – Keith Bradsher and Ailin Tang 10/11

  • “Troubled by huge debts run up by big state companies and politically connected local governments, China is taking steps instead to go after the little guys.”
  • “Chinese officials have ordered provincial governments to establish online platforms naming those who do not pay their obligations, official media reported this week. The lists should be maintained by local news organizations as well as courts and regulators, the report said, with an aim of exposing deadbeats and pressuring them to pay up.”
  • “The new effort is unlikely to affect big borrowers, like major state-owned companies and other big firms, whose debts are almost never called in. But it could intensify and centralize officials’ broader moves to assign ratings to individuals based on creditworthiness and other criteria; practices like credit scoring are only just now taking off in the country.”

Japan

WSJ – Daily Shot: BOJ asset purchases and pace of purchase 10/12

  • “The BoJ is quietly slowing its securities purchases (as part of ‘yield targeting’).”

September 26, 2017

If you were to read only one thing…

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

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

Perspective

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

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

Worthy Insights / Opinion Pieces / Advice

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

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

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

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

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

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

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

Markets / Economy

WSJ – Daily Shot: Consumer Staples Selloff 9/25

  • Consumer push back against food incorporated.

Examples…

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

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

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

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

Energy

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

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

Finance

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

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

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

Construction

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

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

China

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

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

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

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

Puerto Rico

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

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

September 14, 2017

Perspective

WSJ – Daily Shot: US Census Bureau, Piper Jaffray – Construction & GDP Correlation 9/13

WSJ – Daily Shot: Moody’s – Impact of Irma on Southwest US 9/13

FT – Chart of the day, offshore tax haven market-share edition – Cardiff Garcia 9/11

  • “In all the micro-data we have access to, offshore wealth turns out to be extremely concentrated: the top 0.1% richest households own about 80% of it, and the top 0.01% about 50%.” – Annette Alstadsaeter, Niels Johannesen, and Gabriel Zucman

Worthy Insights / Opinion Pieces / Advice

WSJ – There’s a Speeding Mass of Space Junk Orbiting Earth, Smashing Into Things – Robert Lee Hotz 9/12

Economist – The lessons of fidget spinners 9/9

  • “Sales might have peaked, but they have changed toys.”

Economist – Mobile technology is revamping loyalty schemes 9/7

  • “If you want loyalty, get big data.”
  • “When Caesars Entertainment, a casino group, went bankrupt in 2015, auditors valued its loyalty database at $1bn, more even than its property on the Las Vegas strip.”

Markets / Economy

WSJ – Daily Shot: US Real Household Median Income (2016) 9/13

WSJ – Daily Shot: US Real Household Income by selected income percentiles 9/13

WSJ – Daily Shot: US Real Household Income by ethnicity 9/13

WSJ – Daily Shot: BMO Wealth Management – Bloomberg – Declining Corporate R&D 9/13

Energy

WSJ – Daily Shot: Bloomberg – Retail Gasoline Price Spike 9/13

  • Never waste a good crisis…

FT – Nigeria to resist cuts to its oil output, minister says – Anjli Raval 9/12

Finance

VC – Comparing Bitcoin, Ethereum, and Other Cryptos – Jeff Desjardins 9/11

Shipping

WSJ – Daily Shot: Baltic Dry Index 9/11

  • “The Baltic Dry shipping index hit the highest level in a couple of years amid better demand for iron ore.”

China

FT – Life sentences, $290m fine for Ponzi scheme in China – Edward White 9/11

  • “The two men who led a massive Chinese lending scam were sentenced to life behind bars by a Beijing court on Tuesday.”
  • “Ding Ning, the 35-year-old founder of Ezubao, was sentenced to life imprisonment after being charged with fraud, smuggling precious metals, illegal procession of firearms and illegally crossing China’s border. The company’s former chairman Ding Dian was also sentenced to life.”
  • “Ezubao was established in 2014 and became one of China’s highest-profile peer-to-peer lending sites, promising investors annual returns of up to 15%, write Edward White and Xinning Liu. According to the official Xinhua news agency, the Ponzi scheme raised more than Rmb50bn ($7.6bn) from 900,000 investors before arrests were made in early 2016.”
  • “The Beijing Intermediate Court issued fines of Rmb1.9bn (US$290m), which one Chinese lawyer said could mark a new precedent for fraud cases in China. Another 24 people linked to the scam, were handed sentences ranging from three to 15 years.”
  • “Ezubao’s risk controller was quoted by Xinhua in 2016 as saying ‘95% of [our] projects are fake’.”

India

Economist – Panipat, the global center for recycling textiles, is fading 9/7

  • A lesson of what happens when companies fade away when they don’t innovate, invest in R&D, and squeeze their capital and labor.

September 12, 2017

Perspective

Vox – Why Hollywood keeps making the same kinds of movies, in one chart – Alissa Wilkinson 9/7

WEF – This developed country’s shadow economy is worth one-fifth of its GDP – Charlotte Edmond 8/29

Worthy Insights / Opinion Pieces / Advice

FT – The lessons of Hurricane Harvey – Nick Butler 9/10

  • “The most important lesson for the energy sector emerging from Hurricane Harvey is that the key issue of energy security is no longer physical shortages of fuel supplies but the quality of the infrastructure system that takes energy to the final consumer.”
  • “As the waters recede, Hurricane Harvey should serve as a reminder that we live in a world where stability and continuity are the exception rather than the norm. The systems we depend on have to be built, and wherever necessary rebuilt, to minimize the disruption caused by events that are beyond all prediction.”

Energy

WSJ – Daily Shot: Baker Hughes US Crude Oil Rotary Rig Count 9/10

Finance

WSJ – Daily Shot: Swiss Re US Wind Cat Bond Price Return Index 9/8

China

Bloomberg – China’s Latest Bond Default Is a Cautionary Tale for Investors – Lianting Tu, Yuling Yang, Jun Luo, and Judy Chen 9/10

  • “Lulled by years of implicit government support for troubled companies, locals are now having to get acquainted with defaults, which have risen six-fold since the end of 2015 as Beijing shuts down unproductive industries. It’s also placing scrutiny on underwriters, with companies like Wuyang Construction accused by investors of holding back information and providing inconsistent financial figures.”
  • “Beijing’s bailout track record has made Chinese bond investors complacent, according to Yu Lu, a senior analyst at China Chengxin International Credit Rating Co. in Beijing.”
  • “’Investors in China still focus too much on yields rather than risk,’ Yu said. ‘The implicit guarantee in this country has led to poor risk control — they should enhance due diligence and strengthen their analysis of risk.’”

September 7, 2017

Perspective

WSJ – Daily Shot: WEF – National per capita GDP without capital cities 9/5

Worthy Insights / Opinion Pieces / Advice

WSJ – Workers: Fear Not the Robot Apocalypse – Greg Ip 9/5

FT – Will stability become the new watchword for the oil market? – Anjli Raval 9/5

  • “The oil world is divided into two camps.”
  • “There are those who believe the crude price will eventually spike higher, repeating the boom-bust pattern that has defined the market for more than a century. Lined up against them are those betting prices will defy history, staying low and rangebound.”
  • “Complicating the debate is that it hinges on a US shale industry that is barely a decade old and accounts for little more than 5% of global supplies. Can it really eliminate the risk of a price spike by growing fast enough to meet forecasts for rising demand?”
  • “Of total global production at about 98m barrels a day, US crude output makes up 9.2m b/d with the country’s fast-growing shale segment comprising just 5.6m b/d, energy data show “
  • “The mismatch is why drastic cuts to investment in future production have forced global energy bodies and exporter countries, such as Opec’s de facto leader Saudi Arabia, to warn of a looming supply gap.”
  • “Historically about 15bn barrels of new supplies from conventional resources are approved for development each year, the International Energy Agency says. This fell to 8bn in 2015 and 5.5bn in 2016. Despite a rise to 8bn-9bn barrels this year, the IEA expects that global oil supply will still struggle to keep pace with demand after 2020.”
  • “Global oil consumption is expected to grow on average by 1.2m b/d each year to 2022. The IEA’s forecasts also account for unconventional supplies as well as declining output rates from existing fields.”
  • “Tim Gould, the IEA’s long-term supply analyst, accepts that US shale supply could increase ‘significantly’ from today’s levels. ‘But after that, large scale increases will be difficult to achieve. There is less of a chance that it can ramp up to fill any gap.'”
  • “Proponents of this view, including hedge fund manager Pierre Andurand, say oil will return to $100 a barrel.”
  • “But those confident the price will stay rangebound are not convinced. The fear — or hope — of an emerging supply gap is exaggerated, they say, and fails to acknowledge shale supply as a transformational force.”
  • “’The oil market is indeed the most competitive it has ever been,’ said Ed Morse at Citigroup, who argues that US shale has broken the historically oligopolistic market structure.”
  • “Rather than Opec’s production determining market balances, US shale is the new source of responsive supply. Mr. Morse argues the shale deniers are underestimating its prowess, from the geology to the technology allowing this oil to be unlocked.”
  • “’There is just an unwillingness to understand shale. It’s a world that many still find alien,’ said Mr. Morse, who believes $45-$65 oil is likely to persist for years.”
  • “Those pushing the lower-for-longer — and maybe forever — thesis also question the willingness of Opec producers and their allies to maintain supply curbs as production from the US to Canada’s oil sands and Brazil’s deepwater fields thrives.”
  • “Unquestionably, US shale’s resilience has enabled it to surpass even the most bullish expectations. But Bob McNally at consultancy Rapidan Group said the industry had yet to prove itself as a ‘swing producer’, able to put a floor as well as a ceiling on prices. Volatility, he said, is the only certainty.”
  • “Perpetual $50-$60 is as wrong now as endless $100 was four years ago.”

Real Estate

WSJ – Daily Shot: The 12 Most Expensive Rental Markets 9/5

Australia

Economist – How Australia broke the record for economic growth – E.A.D.W. 9/6

  • “The last time Australia suffered a recession the web browser had just been invented and Bryan Adams topped the charts. Figures released today will show that its economy has racked up the longest stretch of growth in modern history: 104 quarters. The Netherlands, the previous title-holder, dipped into recession—defined as two consecutive quarters of contraction—after 103. In these 26 years, Australia has navigated the Asian financial crisis, the collapse of the dotcom bubble and the Great Recession, largely without scars. Its once-in-a-generation mining boom ended in 2014. Yet it has managed to avoid a bust…”
  • “The luck seems set to continue. The central bank predicts that GDP growth will pick up to about 3% in the next couple of years. But families have reason to feel less optimistic. Unemployment rates have flat-lined above their equivalents in America, Britain and Japan. Underemployment (the number of people who would like more work) is close to record highs. Rising national income is not trickling down to workers: wage growth has fallen to about 1.9%, its slowest pace since the last recession. This is all the more uncomfortable because household debt has ballooned. Its ratio to GDP is close to 190%, one of the highest in the world. If the central bank raises interest rates, many families will have difficulties repaying their mortgages. For now, it is likely to do nothing—and the growth will go on.”

Europe

FT – Polish president warns ‘multi-speed’ EU will collapse – James Shotter and Jim Brunsden 9/5

  • “Andrzej Duda says bloc would lose attractiveness for countries deemed ‘second class.'”

South America

NYT – Brazilian Corruption Case Ensnares Ex-Presidents da Silva and Rousseff – Shasta Darlington and Ernesto Londono 9/5

  • “Brazil’s attorney general on Tuesday charged former President Luiz Inácio Lula da Silva; his successor, Dilma Rousseff; and several other senior figures of the Workers’ Party with running a ‘criminal organization’ that raked in hundreds of millions in bribes during the party’s nearly 14-year reign.”
  • “The attorney general, Rodrigo Janot, whose term ends this month, described the governments of Mr. da Silva and Ms. Rousseff as essentially fronts for a criminal enterprise through which senior politicians collected roughly $450 million from entities that included the state-run oil company Petrobras and the Brazilian National Development Bank. In addition to his conviction, Mr. da Silva has been charged in several other cases in which he stands accused of accepting bribes of relatively modest sums.”
  • “But the 230-page charge sheet released Tuesday puts him at the center of a huge conspiracy. Mr. Janot wrote that the allegations should not be seen as a sign that the judiciary was ‘criminalizing politics’ or routine ‘political negotiations,’ but rather as a record of a ruling elite that systematically used public money to ‘buy popular support.’”

August 31, 2017

Perspective

FT – Taxpayers face lion’s share of $50bn storm Harvey bill – Alistair Gray 8/30

  • “Tropical storm Harvey is shaping up to be one of the three costliest natural disasters in modern US history.”
  • “As the system encircles the devastated region for a sixth consecutive day, some forecasters warn it may prove even more financially ruinous than superstorm Sandy and be topped only by Hurricane Katrina.”
  • “This time, however, the insurance industry — traditionally the backstop in tough times — is expected to avoid picking up much of the tab as many householders lack cover for flooding. Taxpayers are likely to cover a big chunk of the loss, but how much support the state will provide is far from clear.”
  • “Gary Martucci, director at the rating agency Standard & Poor’s, described the storm as ‘unique’ in that it released so much rainfall while its winds caused a small proportion of the devastation. Flood damage is particularly difficult to assess, not least because it makes it harder for loss adjusters to access stricken properties.”
  • “Many homeowners will not, in any case, be covered as standard US home insurance policies exclude flood damage. For decades the industry has been unprepared to underwrite flood risk because of the potential for catastrophic losses.”
  • “Householders can get cover from a government-backed scheme, the National Flood Insurance Program (NFIP), but only about one in six properties in the county in which Houston is located has the protection, according to Larry Greenberg, insurance analyst at Janney Montgomery.”
  • “Lawyers predict protracted disputes over insurance coverage — on issues ranging from the definition of flood damage to whether or not a property was rendered inaccessible.”
  • “Mr. Pasich (Kirk Pasich, attorney), who represents corporate policyholders, expects battles for years to come. ‘Some of the litigation that came out of Katrina is still going on,’ he said.”

Worthy Insights / Opinion Pieces / Advice

Bloomberg – Kushners’ China Deal Flop Was Part of Much Bigger Hunt for Cash – David Kocieniewski and Caleb Melby 8/31

MarketWatch – Amazon is actually the weakest of the big U.S. retailers, Moody’s says – Ciara Linnane 8/31

  • “The perception that as soon as Amazon enters a product category, it immediately wins is also flawed, said the analyst. While Amazon is clearly disruptive, it does not dominate any category in which it operates.”
  • Well maybe not ‘any’…very few companies have figured out the hype game so well (except for maybe Tesla and Bitcoin).

Project Syndicate – Odious Ratings for Public Debt – Ricardo Hausmann and Ugo Panizza 8/30

Markets / Economy

WSJ – Daily Shot: ADP – US Job Creation by Category 8/31

Real Estate

FT – Harvey floods prompt alert on risk of mortgage bond defaults – Joe Rennison 8/30

  • “Tropical storm Harvey has put up to $30bn of securitized commercial mortgages on the watch list of analysts and investors, as damage from the disaster has heightened the risk of defaults.”
  • “Morningstar Credit Ratings said 1,529 properties, with an outstanding mortgage balance of $19.4bn could be affected. The majority of the properties are in Harris County, which has suffered from severe floods since Harvey hit Texas as a hurricane on Friday.”
  • “Data company Trepp cast a wider geographical net and put the universe of affected loans at a larger $29.6bn across 2,200 properties.”
  • “Fitch Ratings estimates $10.4bn of loans in bonds it has provided credit ratings to could be impaired.”
  • “’The storm could add long-term uncertainty to the performance of the properties if homes are damaged and residents . . . are unable to move back promptly,’ Fitch said.”
  • “The risk centers on properties that may be uninsured against flood. The widespread impact of the hurricane means that properties outside traditional flood zones could be affected, said analysts. Other risks include the possibility that flooding may have left undamaged properties stranded. For example, a hotel may be open but if people cannot reach it, then it will suffer.”
  • “But Mr. Clancy (Manus Clancy, head of research at Trepp) added that damage from previous storms, such as from Hurricane Katrina or Hurricane Sandy, had resulted in little knock-on effect to commercial mortgage-backed securities. Traders and analysts said there had been little noticeable effect in markets, with bonds trading without impairment on Wednesday.”
  • “’The market has not reacted in a way to assume assets will be written off,’ said Mr Clancy. ‘People want to know their Houston exposure but they are expecting there will be enough insurance proceeds to cover the value of the bonds.’”

FT – ‘Nonprime has a nice ring to it’: the return of the high-risk mortgage – Ben McLannahan 8/30

Energy

FT – Storm Harvey exposes Achilles heel for global energy market – Gregory Meyer and Jude Webber 8/31

  • “’It’s a major event. It’s going to impact both domestic and world markets,’ says John Auers, executive vice-president at Turner Mason, a consultancy.”
  • “The shale drilling boom catapulted the US into the top tier of oil and gas producers in the past decade. Refineries clustered in Texas and Louisiana have expanded and now export about 4m barrels per day of refined fuel overseas.”
  • “The US’s new status as an energy powerhouse has created a more flexible, diverse, and arguably resilient world fuel market.”
  • “But Harvey is exposing an Achilles heel: the concentration of US energy assets in a low-lying, hurricane-prone coastal corridor makes the world more exposed to local weather.”
  • “The immediate effects of the storm have been to knock out more than 3m barrels per day of oil refining capacity, or 16% of the US total, according to S&P Global Platts. Among the refineries to close was the nation’s largest, Motiva in Port Arthur, Texas, where nearly four feet of rain fell.”
  • “’There are huge amounts of US products that are not being delivered,’ says Olivier Jakob of Petromatrix, a Swiss-based consultancy. ‘The US is exporting so much compared to before, this is a major disruption for world oil flows.’”
  • “The Gulf’s energy industry may well recover quickly from Harvey, but the Atlantic hurricane season has months to go. On Thursday a storm named Irma was forecast to blow into the Caribbean as a major hurricane.”

FT – European fuel armada heads for US after tropical storm Harvey – David Sheppard 8/30

  • “A flotilla of European fuel tankers is preparing to sail to the US in the wake of tropical storm Harvey, as oil traders rush to replace supplies of petrol knocked out by the worst storm to hit Texas in 50 years.”
  • “Shipbrokers in London said almost 40 cargoes of petrol had been booked or were being negotiated so far this week, well up on the usual volume, and traders were asking for flexibility to deliver either to the Atlantic seaboard or the Gulf Coast depending on when ports may reopen.”
  • “Tanker earnings for the transatlantic route, a proxy for demand, have soared almost six-fold in the past week, shipbrokers said, rising to more than $20,000 a day for the benchmark voyage, from $3,500 a week ago. The total number of shipments could still change because not all voyages are arranged through brokers, and some still being discussed may not be finalized. About 25 have already been fixed or are expected to be in the coming days.”

Finance

WSJ – Daily Shot: S&P Global Market Intelligence – BB/BB- Spreads 8/31

WSJ – Daily Shot: S&P Global Market Intelligence – B+/B Spreads 8/31

WSJ – Daily Shot: S&P Global Market Intelligence – Debt Buyers 8/31

  • “This chart shows banks pulling out of corporate leveraged loans, as institutions (such as BDCs, CLOs, credit funds, hedge funds, etc.) pile into the market.”

China

Bloomberg – China’s $2 Trillion of Shadow Lending Throws Focus on Rust Belt – Jun Luo and Alfred Liu 8/29

  • “By analyzing 237 Chinese banks, many of them small and unlisted regional lenders, Bedford casts a new spotlight on underground financing and the risks it poses to the nation’s $35 trillion banking industry. Shadow loans grew almost 15 percent to 14.1 trillion yuan ($2.3 trillion) by December from a year earlier, equal to about 19% of economic output, he estimates.”
  • “’This is a sleeper issue,’ Bedford wrote. ‘The remarkable level of concentration in regional banks in rust-belt region banks, combined with evidence that these assets are increasingly being used to roll over loans to existing borrowers as well as being swapped between banks without a clear transfer of risk are alarming.’”
  • “Accounting for this financing, Chinese banks’ nonperforming loans could be three times higher than the official published level, he said.”
  • “By recording such lending under ‘investment receivables’ rather than ‘loans’ on their financial statements, banks were able to disguise what is in effect lending, to get around regulatory lending curbs or heavy reliance on wholesale funding. Such financial engineering also enabled some lenders to overstate their capital adequacy ratios, understate nonperforming loans and reduce provision charges.”

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.”