Tag: Energy

January 30, 2018

Perspective

statista – Super Bowl LII – Felix Richter 1/26

Worthy Insights / Opinion Pieces / Advice

FT – The dangers of digital democracy – Rana Foroohar 1/28

FT – What Venezuela’s chaos means for the oil market – Nick Butler 1/28

  • “Anyone looking for an explanation of the recent uptick in the oil price towards $70 a barrel need look no further than the unhappy state of Venezuela. Oil production in the country fell 13% in 2017 (against the 2016 average), with the drop accelerating towards the end of the year. In the last three months alone output has fallen by more than 500,000 barrels a day to a 28-year low of just over 1.6m a day.”
  • “On any normal measure, Venezuela should be one of the world’s richest countries. With proven oil reserves of over 300bn barrels and a wealth of other natural resources, the 30m citizens of the Bolivarian Republic should be the beneficiaries of a secure regional market for oil supplies and of the skills accumulated in the industry over the last 80 years.”
  • “Instead, the country is on the verge of bankruptcy. The government is toying with inventing a currency — the petro — securitized against the contents of an oilfield in the Orinoco basin. But the first requirement of cryptocurrencies is trust and there is little or none of that for the government of President Nicolás Maduro. Inflation rate is running at 1,178%, according to unofficial estimates — the government has stopped publishing inflation data.”
  • “The collapse of Venezuela as a viable state has accelerated over the past six months and its effects have begun to hit the country’s core business — the production of oil. The state company PDVSA is deeply in debt. Including bonds, notes and other loans, it owes around $56bn. Schlumberger the international oil services company, took a write down of $938m last month because of bills the country has failed to pay.”
  • “Cuba, once the closest ally of Venezuela’s hard-left leadership, has taken control of PDVSA’s stake in a local refinery to offset unpaid debts. Russia and China have at times propped up the Maduro government but now the limit of generosity seems to be some relief on repayment terms rather than new loans.”
  • “In the absence of regime change there will be no rescue funds from the International Monetary Fund or anyone else. Meanwhile, the opposition, although vocal, lacks any effective power. In these circumstances, the country’s oil production is likely to stay down, and could well fall further during 2018.”
  • “For Venezuela the situation is a deepening tragedy. For the oil market, and Opec in particular, the loss of production from one of the most important producers outside the Middle East is a source of salvation.”

NYT – The Follower Factory – Nicholas Confessore, Gabriel Dance, Richard Harris, and Mark Hansen 1/27

  • “Everyone wants to be popular online. Some even pay for it. Inside social media’s black market.”

Energy

WEF – We’re getting closer to completing the energy transition – Faith Birol 1/18

Environment / Science

FT – The problem with plastic – Clive Cookson 1/23

  • “Every year an estimated 8 million tons of plastic end up in ocean.”

Health / Medicine

NYT – In Kenya, and Across Africa, an Unexpected Epidemic: Obesity – Jeffrey Gettleman 1/27

China

FT – China faces refinancing crunch with $2.7tn of bonds bearing down – Emma Dunkley and Gabriel Wildau 1/28

  • “China’s $4tn bond market faces a refinancing challenge over the next five years as more than half of the outstanding debt matures, heightening concerns over default risk by some borrowers.”

FT – China’s HNA tries to navigate turbulent times – Lucy Hornby 1/28

  • “In the space of just 12 months, Chinese airline-to-finance conglomerate HNA has morphed from a symbol of the ambition and wealth of China Inc into a cautionary tale of corporate indebtedness.”
  • “About $20bn in US dollar-denominated bonds issued by HNA and its subsidiaries are due to mature in 2018 or 2019. The yields on three of those dollar bonds issued by HNA’s main Hong Kong subsidiary have spiked, doubling this month to more than 18%.”
  • “There are also signs of a cash crunch rippling through the group’s complex structure, which includes 16 listed entities and many layers of shell companies and crossholdings. Several have raised debt from Chinese banks and HNA has also turned to high-interest peer-to-peer loans, making its renminbi-denominated debt harder to quantify.”

Japan

Project Syndicate – The Bank of Japan’s Moment of Truth – Takatoshi Ito 1/25

  • “After years of deflation, Japan’s labor market is the tightest it has been in decades and the Bank of Japan is still providing significant stimulus to the economy. But with inflation still well below target, central bankers are finding themselves between a rock and hard place.”

January 29, 2018

Perspective

BLS – TED: The Economics Daily – Union Membership Rates in each State, 2017 1/25

  • “New York continued to have the highest union membership rate (23.8%), while South Carolina continued to have the lowest (2.6%).”

statista – The Countries Most Optimistic About 2018 – Niall McCarthy 1/22

Visual Capitalist – Visualizing a Global Shift in Wealth Over 10 Years – Jeff Desjardins 1/26

WSJ – Daily Shot: US Upward Mobility 1/26

Worthy Insights / Opinion Pieces / Advice

A Wealth of Common Sense – Some Lessons For Living From Older Generations – Ben Carlson 1/25

Project Syndicate – Blockchain’s Broken Promises – Nouriel Roubini 1/26

WSJ – My 10-Year Odyssey Through America’s Housing Crisis – Ryan Dezember 1/26

Markets / Economy

Bloomberg – Worthless Auto Trade-Ins Signal Riskier Loans – Claire Boston 1/25

  • “A growing share of the trade-ins that U.S. auto dealers and lenders accept for car-purchase financing are worthless on paper, a sign that banks and finance companies are making riskier loans to keep up revenue as vehicle sales slow.”
  • “Almost a third of cars traded in last year were worth less than the loans that had been financing them, according to car-shopping website Edmunds. That’s up from about a quarter a decade earlier, said Edmunds, which looked at cars traded in as part of financing packages for new auto purchases in the U.S.”
  • “Underwater trade-ins are just one example of the greater risks that lenders are taking now. New vehicle sales fell 1.8% to 17.2 million in 2017, but lending volume for new and used car purchases was on track to be higher than ever, according to data from the Federal Reserve Bank of New York and consumer credit bureau Experian. The growth in the average amount financed for a new car outpaced median income growth between 2013 and 2016, Moody’s said, suggesting borrowers are getting more strained.”
  • “Any pain from car-loan trouble will likely be just a shadow of the housing bubble collapse, because the auto debt market is much smaller. There were around $9 trillion of mortgages outstanding at the end of the third quarter, compared with $1.2 trillion of auto debt, the New York Fed said. And so far, many of the bonds backed by subprime auto loans are performing well thanks to built-in protections for investors. Wells Fargo analysts said in a note Wednesday that bonds issued by two of the biggest subprime auto lenders — Santander Consumer USA Holdings Inc. and General Motors Co.’s finance arm — have room to reach prices not seen since before the financial crisis.”
  • “The higher percentage of underwater loans on trade-ins may be a sign that car owners are trading in their vehicles sooner than they had previously. A consumer is often the most underwater on his or her auto loan in the first few years of ownership, because the value of the vehicle drops fastest over that time.”
  • “For borrowers who do trade in their underwater cars, lenders are essentially giving them the money to pay down their loan. The dealer sells the used car, and whatever balance remains on the old loan is folded into the new loan. The borrower might get a longer-term loan than he or she had before to help keep monthly payments manageable.”

Real Estate

Commercial Property Executive – REIT Gets SEC OK for St. Regis Aspen Resort IPO – Gail Kalinoski 1/26

  • “Aspen REIT Inc. has been given approval by the Securities and Exchange Commission for a $33.5 million initial public offering allowing investors to buy shares in the luxury St. Regis Aspen Resort in Colorado.”
  • “Upon closing of the IPO, Aspen REIT will be the first single-asset REIT to list on a national securities exchange in the U.S., according to the company.”
  • “Aspen REIT is offering 1,675,000 shares at $20 per share in the Regulation A+ IPO. The REIT applied to list its common stock on the NYSE American stock exchange under the ticker symbol AJAX. Aspen REIT intends to use substantially all of the net proceeds from the IPO, together with equity in Aspen REIT’s subsidiary operating partnership, to acquire the St. Regis Aspen Resort, a full-service, 179-key luxury hotel at the base of Aspen Mountain in the Rocky Mountains.”
  • Well that’s another way to ‘crowd source’ / syndicate funds.

Finance

Topdown Charts – ChartBrief 182 – Bond Yield Outlook – Callum Thomas 1/24

  • “There has been a lot of talk lately about trendlines, key levels and breakouts by some of the big names… Ray Dalio, Jeffrey Gundlach, Bill Gross.  But anyway, you don’t need to be a famous hedge fund manager to see the writing slowly showing up on the wall here across the major global sovereign bond markets.  The charts below show US and German 10-year bond yields have already broken out, and Japan/UK are getting close.”

WSJ – Daily Shot: US 3 Month LIBOR Rate 1/24

Cryptocurrency

Bloomberg – Coincheck Says It Lost Crypto Coins Valued at About $400 Million – Yuji Nakamura and Andrea Tan 1/26

Environment / Science

Yale News – 2018 Environmental Performance Index: Air quality top public health threat 1/23

Mexico

Reuters – Mexico’s drug cartels, now hooked on fuel, cripple the country’s refineries – Gabriel Stargardter 1/24

Puerto Rico

NYT – Hurricane-Torn Puerto Rico Says It Can’t Pay Any of Its Debts for 5 Years – Patricia Mazzei and Mary Williams Walsh 1/24

  • “The devastation wrought by Hurricane Maria has made Puerto Rico’s already dire financial situation even worse: The island’s leaders acknowledged late Wednesday that they will not be able to pay down any portion of their more than $70 billion debt for the next five years because of the damage.”
  • “Just before the hurricane, Puerto Rico had made plans to pay creditors a total of $3.6 billion through 2022. That was a fraction of the amount due, had the island, a United States territory, not gone into default.”
  • “Now, Puerto Rico expects its budget to be $3.4 billion in the red this year — a deficit that will take five years to close — because of the storm’s toll.”
  • “Nearly a third of customers remain without electricity, more than four months after the storm.”
  • “The government projects its population will shrink by 19.4% over the next five years, with a total exodus of over 600,000 people.”

 

January 24, 2018

Perspective

A Wealth of Common Sense: 180 Years of Stock Market Drawdowns – Ben Carlson 1/22

  • “A reader sent me a link to a video of a presentation given by former hedge fund manager and quant Robert Frey (whose firm was actually bought out by legendary hedge fund manager Jim Simons in the 90s) called 180 Years of Market Drawdowns.”
  • “Frey discusses the many changes that have taken place in the stock market over the years — the creation of the Fed, monetary policy, fiscal policy, the end of the gold standard, tax rates, valuations, the industry make-up of the markets and a number of other things.”
  • “But there has been one constant going back all the way to the early 1800s — risk. More specifically, drawdowns or losses. Frey presented a couple of different charts on the market to make his point. First, here’s the long-term growth of the stock market with losses shaded in red:”
  • “Now here are those losses visualized in another way without the benefit of a log scale chart:”
  • “Obviously, the crash during the Great Depression stands out here, but look at how consistent losses have been over each and every decade or economic environment. Losses are really the one constant across all cycles.”
  • “Frey says in his talk that in stocks, ‘You’re usually in a drawdown state’.”
  • “Stocks don’t make new highs every single day, so most of the time you’re going to be underwater from your portfolio’s high water mark. This means there are plenty of chances to be in a state of regret when investing in stocks.”
  • “This makes sense when you consider that stocks are positive just a little over half the time when looking at returns on a daily basis, but it can be difficult to wrap your head around this fact.”
  • “I used monthly total returns on stocks for these numbers and found that an investor would have been down from a prior peak over 70% of the time. The majority of your time invested in stocks could be spent thinking about how you coulda, shoulda, woulda sold at that previous high price (which of course gets taken out to the upside eventually).”
  • “Over the last 90 years or so the market have been in a bear market almost one-quarter of the time. Half the time you’re down 5% or worse. It’s difficult to appreciate this fact when looking at a long-term log scale stock chart that seems to only go up and to the right.”
  • “This is why stocks are constantly playing mind games with us. They generally go up but not every day, week, month or year.”
  • “No one can predict what the future returns will be in the market. No one knows what the future holds for economic growth. And we certainly can’t predict how investors will decide to price corporate cash flows at any given point in time out into the future.”
  • “But predicting future risk is fairly easy — markets will continue to fluctuate and experience losses on a regular basis. As an investor in stocks you will spend a lot of time second-guessing yourself because your portfolio has fallen in value from a previously seen higher level.”
  • “Market losses are the one constant that don’t change over time — get used to it.”

Worthy Insights / Opinion Pieces / Advice

A Teachable Moment – A Goon Squad of Charlatans, False Prophets and Mercenaries – Anthony Isola 1/23

NYT – What if a Healthier Facebook Is Just … Instagram? – Kevin Rose 1/22

Markets / Economy

FT – No stealth taper from Bank of Japan – Robin Harding 1/23

  • “BoJ governor says bank has not started thinking about exit from monetary easing.”

FT – High-spirits as Bacardi swallows Patron tequila for $5.1bn – Jude Webber 1/22

Energy

FT – Trump’s 30% tariffs on solar imports anger global sector – Ed Crooks 1/23

  • “The Solar Energy Industries Association said it expected the tariffs to cost about 23,000 jobs, based on modeling by IHS Markit, the research group. That is about 9% of the estimated US solar workforce of about 260,000.”

FT – Trump raises temperature with new tariffs in China trade battle – Shawn Donnan and Ed Crooks 1/23

  • Beijing and Seoul are not happy.

Finance

FT – Private equity: flood of cash triggers buyout bubble fears – Javier Espinoza 1/22

  • “The buyout sector is on a tear as investors hunt for higher returns. But as competition and valuations increase, some fear a dangerous new cycle.”

Cryptocurrency

Bloomberg Businessweek – Startups Are Raising Billions Using Initial Coin Offerings – Yuji Nakamura 1/22

FT – The $3bn ICO question – Don Weinland 1/23

  • “Where has the $3bn raised in ‘initial coin offerings’ over the last year and a half actually gone?”
  • “A group of academics led by experts from the University of Luxembourg and the European Banking Institute, have been pondering that very question for months. And what they found out could alarm investors who have been buying into companies using an instant digital ledger (aka blockchain) and cryptocurrencies instead of investing on the stock markets with hard cash.”
  • “On the crucial question of who is ‘behind’ an ICO, the researchers found that 21% of the 300 ICO deals in their database ‘failed to convey any information at all about the issuing entity’. About 52% of the issuers did not provide valid postal addresses.” 
  • “The authors stress that they have only looked at 300 ICOs, and therefore their findings should not be taken as ‘any more than very broadly indicative, given that the total universe of ICOs’ is more than 1,000.”
  • “Regulators around the world have found ICOs’ rise troubling, especially since the rewards promised by ICO issuers are often obtuse and can range from use of their product (in exchange for the tokens investors buy) to a share in profits. In some cases, investors hold on to the tokens hoping for a Bitcoinesque rise in value.” 
  • “Despite the high level of regulatory uncertainty, most issuers have so far done little to make things clearer for buyers.”
  • “Nearly 83% of the ICOs give no regulatory status for the offerings, the report says. That means the buyer does not know under what laws the ICO is regulated, or what their legal rights are after making a purchase. The researchers could not determine in what jurisdiction 93 of the ICOs, were based.”

WSJ – The Programmer at the Center of a $100 Billion Crypto Storm – Paul Vigna and Jim Oberman 1/23

  • “How a top source of bitcoin data contributed to a sudden plunge in digital currencies.”

WSJ – Daily Shot: Bitcoin 1/22

Tech

FT – WeChat launches alternative to Apple App Store – Yuan Yang 1/9

  • “WeChat, China’s most frequently used mobile app, today started offering ‘miniprograms’ within the app from third-party developers. Users can now book a shared ride with Didi, order a gift from JD.com, or rent a bicycle from Mobike — and use over 100 other ‘apps within the app’ — without leaving the WeChat platform.”
  • Note that WeChat now has over 580,000 apps within its universe – up from 100 when it started.
  • “The new miniprogram function makes WeChat, or Weixin in Chinese, the first big platform to provide an alternative to the App Store from Apple, which has tightly controlled what programs can be installed on an iOS device.”
  • “The miniprograms can be used almost instantly and provide stripped-down functions compared to the original full apps.”
  • “Rather than the 30% cut that Apple takes from App Store purchases, developers have not been asked to give any cut to WeChat, according to Matthew Brennan of the tech consultancy ChinaChannel.”
  • “In addition, miniprograms are ‘device-neutral’, meaning they will run in exactly the same way on Android and iOS.”
  • “WeChat’s captive audience makes it a more plausible candidate to crack open in-app app distribution. The platform accounts for 35% of all time spent on mobiles in China, according to QuestMobile, the tech research lab. More than 750m people log into WeChat daily, and half of them use it for more than an hour and a half each day.”
  • “’Tencent is winning the mobile war. Miniprograms will come to have a material impact on Apple’s App Store revenues; around 15% of China’s mobile market are iOS users. Tencent is Apple’s number one source of income from the App Store globally,’ said Mr Brennan.”

Health / Medicine

WSJ – Why Our Mental Health Takes a Village – Elizabeth Bernstein 1/22

  • “Different people can help us manage different moods. Psychologists explain how to build a portfolio of supportive allies.”

China

NYT – China’s Housing Market Is Like a Casino. Can a Property Tax Tame It? – Keith Bradsher 1/22

  • “Now the Chinese government is considering adopting something that, while familiar to homeowners in the United States and elsewhere, could dramatically reshape the world’s second-largest economy: a property tax.”
  • “Living in a place without property taxes may sound appealing, but a growing number of experts and policymakers in China say the absence of one has helped destabilize a vast and crucial part of the Chinese economy.”
  • “Many investors snap up homes — in China, they are mostly apartments — hoping to ride a price surge. In the biggest cities, property prices on average have at least doubled over the past eight years. But vast numbers of apartments in many cities lie empty, either because the buyers have no intention of moving in or renting out, or because speculators built homes that nobody wants.”
  • “A property tax could have a profound impact on a crucial part of the nation’s economy. Real estate makes up nearly three-quarters of the assets of Chinese households, according to the Survey and Research Center for China Household Finance, an academic institute in Chengdu, in southwestern China. That compares with a bit more than one-third for United States households. Roughly a fifth to a quarter of China’s annual economic output comes from property and related industries, like furniture making.”
  • “But housing is also the source of some of the country’s biggest booms and busts. Local investors — many of whom do not trust the country’s stock markets and are forbidden by Beijing to move most of their wealth abroad — simply throw money at housing. Real estate broker fees, often as low as 1%, are a small fraction of the typical 6% in the United States. Mortgage lending has leapt over the past two years, adding to the potential for financial turbulence.”

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 18, 2018

Perspective

Visual Capitalist – Over the Next Year, Germany Will Hit a Scary Demographic Milestone – Jeff Desjardins 1/16

WSJ – Daily Shot: Amerisleep – The State of Sleep 1/17

Worthy Insights / Opinion Pieces / Advice

Mauldin Economics – The Fed Has Put Itself Out of Business, Where to Now? – John Mauldin / Lacy Hunt 1/16

Pragmatic Capitalism – Will Centralized Entities Ruin the Decentralized Party? – Cullen Roche 1/15

  • “One of the key aspects of the crypto boom that keeps bothering me is the inherent conflict between centralized entities and decentralized entities.”

Markets / Economy

WSJ – Daily Shot: Reuters – Dow Double 1/16

  • “It took just over five years for the Dow to double.”

Energy

Reuters – U.S. oil industry set to break record, upend global trade – Liz Hampton 1/15

  • “Surging shale production is poised to push U.S. oil output to more than 10 million barrels per day – toppling a record set in 1970 and crossing a threshold few could have imagined even a decade ago.”
  • “And this new record, expected within days, likely won’t last long. The U.S. government forecasts that the nation’s production will climb to 11 million barrels a day by late 2019, a level that would rival Russia, the world’s top producer.”
  • “The economic and political impacts of soaring U.S. output are breathtaking, cutting the nation’s oil imports by a fifth over a decade, providing high-paying jobs in rural communities and lowering consumer prices for domestic gasoline by 37% from a 2008 peak.”
  • “U.S. energy exports now compete with Middle East oil for buyers in Asia. Daily trading volumes of U.S. oil futures contracts have more doubled in the past decade, averaging more than 1.2 billion barrels per day in 2017, according to exchange operator CME Group.”
  • “The United States now exports up to 1.7 million barrels per day of crude, and this year will have the capacity to export 3.8 billion cubic feet per day of natural gas. Terminals conceived for importing liquefied natural gas have now been overhauled to allow exports.”

Cryptocurrency

FT – Investors face barriers trying to turn bitcoin profits into pounds – Kate Beioley 1/16

MarketWatch – 5 key reasons bitcoin, other cryptocurrencies have lost a stunning $400 billion in 10 days – Mark DeCambre 1/17

  1. South Korea
  2. Russia
  3. China
  4. Bitconnect $BCC
  5. Bitcoin futures

WSJ – Bitcoin Extends Rout, Dipping Below $10,000 – Paul Vigna and Gregor Stuart Hunter 1/17

  • “Bitcoin fell as low as $9,966, down around 6% on the day and nearly half from its Dec. 17 record of $19,783.21, according to data from CoinDesk. A day earlier, the cryptocurrency plunged as much as 25%. Later in the U.S. morning, the price bounced back above the $10,000 mark.”
  • “Wednesday’s drop spread quickly to other major digital currencies. Ether was down as much as 33%. XRP was down 47%. Litecoin was down 35%. Newer tokens like Cardano, EOS and Monero were down 35% or more.”
  • “’We have very fast-moving weather systems in the crypto world,’ said Charles Hayter, the chief executive of research firm CryptoCompare. ‘One moment it’s absolute exuberance, and then it’s pure fear and panic, running for the exits. It’s quite interesting’.”
  • “’This is what you’d expect in a nascent market with a lot of misinformation,’ said Mr. Hayter.”
  • “For all the volatility, bitcoin prices remain in a general uptrend, measured by technical analysis. ‘Suggestions that this is the start of the demise of cryptos is very premature,’ said Fawad Razaqzada, a market analyst at Forex.com.”
  • “The first of Cboe’s (Chicago Board Options Exchange) futures contracts expired on Wednesday, prompting a flurry of trading as market makers rushed to settle transactions and roll over some contracts into next month. Futures traders make a profit if the value of prices and futures diverge when they expire.”
  • “But the assumption that opening a path for bitcoin to institutional buyers would accelerate that momentum hasn’t happened. In fact, the ability to short bitcoin appears so far to be a winning bet. Bitcoin touched its record high the day before futures began trading on Dec. 11 and has been falling since then.”

WSJ – Daily Shot: Ripple 1/16

WSJ – Daily Shot: Capital Economics – Bitcoin Mining Locations 1/17

Health / Medicine

NYT – After a Debacle, How California Became a Role Model on Measles – Emily Oster and Geoffrey Kocks 1/16

Agriculture

WSJ – Daily Shot: Bloomberg Agriculture Subindex 1/16

  • “Bloomberg’s agriculture index continues to hit cycle lows. As a result, US net farm income is down by over 50% since 2013 (according to the USDA).”

Education

MyinTuition – Quick College Cost Estimator – Content below by David Leonhardt at the NYT 1/17

  • “Many people believe that college costs more than it actually does.”
  • “Average net tuition at community colleges is less than zero — seriously — once financial aid is taken into account. Average in-state tuition at public colleges will be just $4,140 this year. And many elite private colleges cover much of their sky-high list-price tuition through scholarships.”
  • “Yet many middle-class and low-income families believe tuition will cost them tens of thousands of dollars a year. This misperception has a serious downside. It keeps some people from attending college, even though the financial (and nonfinancial) benefits of a degree are enormous.”
  • “Fortunately, a growing number of colleges are starting to take tuition misperceptions seriously. Sixteen top colleges are announcing this morning that they’re joining an effort called MyIntuition — an online calculator that lets people answer just a few questions, anonymously, and receive an estimate of how much attending each college would cost.”
  • “The 16 include Boston College, Brown, Davidson, Duke, Johns Hopkins, Northwestern, St. Olaf and Yale. They’ve joined 15 others that already participate. The calculator was created by Phillip Levine, an economist at Wellesley College.”

China

FT – China infrastructure projects fall foul of debt concerns – Tom Mitchell 1/16

  • “Costly projects abandoned after Beijing focuses on meeting ‘needs of the people'”

January 17, 2018

Perspective

A Wealth of Common Sense – Updating My Favorite Performance Chart For 2017 – Ben Carlson 1/14

Worthy Insights / Opinion Pieces / Advice

A Teachable Moment – The Power of Fee Shaming – Anthony Isola 1/15

Yahoo Finance – Business Insider: China is heading toward a debt crisis that will throw into question everything we think we know about its economy – Pedro Nicolaci da Costa 1/15

Markets / Economy

Bloomberg – The Stock Market Never Goes Down Anymore – Elena Popina 1/12

  • “Up eight times in the first nine days of 2018, the S&P 500 has broken away from a trend line, its 200-day moving average, with a velocity unseen since 2013, the best year for equities in a generation. The benchmark now sits more than 11% above the level, putting it in the 92nd percentile of momentum, data going back 20 years show.”
  • “Something has changed in equities. If 2017 was a slow but steady slog, 2018 has been off to the races, with shares rising at four times last year’s daily rate on the back of Donald Trump’s tax package and gathering signs of economic strength. Forty seven companies in the S&P 500 are already up at least 10% this year, compared with just two down as much.”
  • “Fear of missing out is rampant not just on Wall Street but worldwide. Globally, stock funds saw a $24 billion inflow in the five days through Thursday, the sixth largest weekly total ever.”
  • “The average of 23 strategists predictions is for the S&P 500 to reach 2,914 at year-end. If stocks were to maintain the same upward trajectory they’ve exhibited in the last nine days, it would take roughly two more weeks to reach the strategists’ target.”
  • “At 3.4 times its book value, the S&P 500 trades at the most expensive level since 2002, while its 14-day relative strength index reached a level unseen since 1996. The S&P 500 rose 1.6% to 2,786 this week, pushing the spread between the gauge and its 200-day moving average to 11.5%, the widest in five years.”
  • “To Walter Todd, Greenwood Capital chief investment officer, the optimism over earnings growth could continue to propel the stocks even higher.”
  • “’The fundamentals for the rally are strong, though the higher it goes, the higher the risk of a correction, and the higher the risk that the correction will be steep,’ Todd said by phone. ‘For now, fear of missing out is prompting investors who’ve stayed on the sidelines to jump in, as people say, ‘we missed the rally last year, we’re not going to miss on it again’’.”

NYT – BlackRock’s Message: Contribute to Society, or Risk Losing Our Support – Andrew Ross Sorkin 1/15

  • “Laurence D. Fink, founder and chief executive of the investment firm BlackRock, is going to inform business leaders that their companies need to do more than make profits — they need to contribute to society as well if they want to receive the support of BlackRock.”
  • “Mr. Fink has the clout to make this kind of demand: His firm manages more than $6 trillion in investments through 401(k) plans, exchange-traded funds and mutual funds, making it the largest investor in the world, and he has an outsize influence on whether directors are voted on and off boards.”

Real Estate

WSJ – Daily Shot: Vanguard REIT ETF 1/12

  • “REITs broke out to the downside on higher bond yields.”

Energy

FT – Gas and oil producers among hardest hit by US tax reforms – Ed Crooks 1/15

  • “US oil and gas producers are among companies hit hardest by new restrictions on tax relief for interest payments, an analysis of the impact of the reforms has shown.”
  • “The sweeping overhaul of the US tax system signed into law by President Donald Trump just before Christmas cut the main rate for corporations sharply, but will still mean higher bills for some businesses because it sets limits on deductions for interest payments.”
  • “The new law will put pressure on heavily indebted companies to reduce their borrowings, and could push over-burdened companies into steeper decline if their earnings fall.”
  • “Companies in industries including oil and gas, coal mining, casinos and trucking are among those likely to be most affected, according to Greensill Capital, a trade finance firm.”

WSJ – Daily Shot: Brent Crude 1/15

Finance

WSJ – Trouble Ahead for the Treasury Market – Justin Lahart 1/15

  • “Inflation, less central bank bond buying, an increase in supply – there are plenty of reasons for Treasury yields to go a lot higher this year.”

Cryptocurrency

Bloomberg Gadfly – Can Hedge Funds Handle a Bitcoin Bust? – Lionel Laurent 1/16

MarketWatch – Bitcoin tumbles to 6-week low as top cryptocurrencies all sell off – Victor Reklaitis 1/16

TechCrunch – Researchers find that one person likely drove Bitcoin from $150 to $1,000 – John Biggs 1/15

  • “Researchers Neil Gandal, JT Hamrick, Tyler Moore, and Tali Oberman have written a fascinating paper on Bitcoin price manipulation. Entitled ‘Price Manipulation in the Bitcoin Ecosystem’ and appearing in the recent issue of the Journal of Monetary Economics the paper describes to what degree the Bitcoin ecosystem is controlled by bad actors.”
  • “The manipulation happened primarily via two bots, Markus and Willy, that seemed to be performing valid trades but did not actually own the bitcoin they were using. During the Mt. Gox hack a number of these bots were able to create fake trades and make off with millions while manipulating the price of BTC.”
  • “’As mainstream finance invests in cryptocurrency assets and as countries take steps toward legalizing bitcoin as a payment system (as Japan did in April 2017), it is important to understand how susceptible cryptocurrency markets are to manipulation. Our study provides a first examination,’ write the researchers.”

Environment / Science

South China Morning Post – China builds ‘world’s biggest air purifier’ (and it seems to be working) – Stephen Chen 1/16

  • “A 100-meter (328-foot) high air purification tower in Xian in Shaanxi province has helped reduce smog levels in the city, preliminary results suggest.”
  • “The head of the research, Cao Junji, said improvements in air quality had been observed over an area of 10 square kilometers (3.86 square miles) in the city over the past few months and the tower has managed to produce more than 10 million cubic meters (353 million cubic feet) of clean air a day since its launch. Cao added that on severely polluted days the tower was able to reduce smog close to moderate levels.”
  • “The experimental facility in Xian is a scaled-down version of a much bigger smog tower that Cao and his colleagues hope to build in other cities in China in the future.”
  • “A full-sized tower would reach 500 meters (1,640 feet) high with a diameter of 200 meters (656 feet), according to a patent application they filed in 2014.”
  • “The size of the greenhouses could cover nearly 30 square kilometers (11.6 square miles) and the plant would be powerful enough to purify the air for a small sized city.”

China

FT – China disrupts global companies’ web access as censorship bites – Yuan Yang and Lucy Hornby 1/16

  • “China is plugging the last holes in its ‘Great Firewall’ internet censorship apparatus, hampering global groups’ ability to operate in the country.”
  • “China aggressively censors the internet, cutting off locals’ access to Facebook, Google, YouTube and much more, to control what news and facts reach its population. A study by Freedom House, a US state-funded non-profit organization, in November ranked China last in the world for internet freedoms, for the third year in a row.”
  • “Multinationals have historically used software known as virtual private networks (VPNs) to bypass censorship and protect their communications from hacking and government surveillance. But in recent months, the companies said, they have had difficulty using their custom-built VPNs.”
  • “At the same time, regulators have been pushing multinationals to buy and use state-approved VPNs. The state-approved versions can cost tens of thousands of dollars a month and expose users’ communications to Beijing’s scrutiny.” 
  • “’This is a significant ramp-up from previous measures,’ said Carly Ramsey, associate director of consultancy Control Risks in Shanghai. ‘The Xi administration has prioritized control over all information flows within China, and in and out of its borders’.”
  • “’This is not just about tightening access, but also giving the government more visibility and control over cross-border connections. The government now has many new tools to make cyber space ‘secure and controllable’ on their terms,’ said Samm Sacks, senior fellow at the Center for Strategic and International Studies, a think-tank.”
  • “’In a society where the government wants to control the flow of communications and information, secure communications and encryption are certainly an ‘enemy’,’ said Sunday Yokubaitis, chief executive of VPN provider Golden Frog.”

FT – China reprimands companies calling Tibet and Taiwan independent – Emily Feng and Edward White 1/15

  • “Chinese regulators have publicly reprimanded a string of foreign corporations, including Qantas, Zara and Marriott, for labelling Tibet and Taiwan as independent countries, in online drop-down menus.” 
  • “’We welcome foreign corporations’ investment and operation in China,’ said Lu Kang, a spokesperson for the ministry of foreign affairs, at a regular press briefing last week. ‘Meanwhile, they should respect China’s sovereignty and territorial integrity, abide by China’s laws and respect Chinese people’s national feelings.’ Officials in Taipei said that China’s actions did not help Beijing earn the trust of Taiwanese people.”
  • “’Taiwan is undoubtedly a country,’ a spokesperson for President Tsai Ing-wen told the Financial Times. ‘Wiping out the name of Taiwan off the internet will not wipe out our existence in the world.’”

WSJ – China’s Hot Housing Market Begins to Cool – Dominique Fong 1/16

  • “While China has seen brief property downturns before, the high debt levels that fueled the boom makes this slump a particular risk for China’s economy and the policy makers trying to manage it.”
  • “Home prices fell 0.3% in November from a year earlier In Beijing and Shanghai, the most recent official data show. It was a small drop but a striking reversal from double-digit price surges that lasted more than a year.”
  • “Prices of advertised new Shanghai homes decreased 8% from October through mid-December, according to Brandon Emmerich at Granite Peak Advisory, a New York research firm that analyzed over 20,000 daily listings from Anjuke, a Chinese property-listing platform.”
  • “Though China’s Housing Ministry has said that property controls won’t be relaxed, the dangers of the downturn are lessened by the government’s ability to reboot demand by lifting restrictions—and Beijing has held off on introducing an anticipated property tax that could curb speculation but damp prices.”

 

January 16, 2018

Worthy Insights / Opinion Pieces / Advice

FT – Why are so many Americans crowdfunding their healthcare? – Barney Jopson 1/10

FT – A power shift in the Middle East – Nick Butler 1/14

  • “The opening of the Zohr gasfield is a big opportunity for Egypt’s energy ambitions.”

NYT – Is the Answer to Phone Addiction a Worse Phone? – Nellie Bowles 1/12

The New Yorker – The Psychology of Inequality – Elizabeth Kolbert 1/15

  • “Researchers find that much of the damage done by being poor comes from feeling poor.”

Markets / Economy

FT – Bond markets: Is the bull run over? – Robin Wigglesworth 1/12

  • “This year will probably mark the first since the financial crisis where major central banks start shrinking their market footprint, reawakening concerns over the $50tn global bond market where governments, companies and banks raise vital funding.”
  • “The end of the bond bull market has been called before. Last year, many analysts predicted a gloomy outlook. Instead, global fixed income enjoyed its best year in a decade, returning 7.4% to investors in the Bloomberg Barclays Global Aggregate bond index. Few believe bonds will replicate those gains in 2018. But many investors say it is far too early to read the market’s last rites, given some of the long-term global forces — such as the inflation-subduing forces of demographics and technology — that keep yields suppressed.”
  • “But investors now face a shift in central bank policy.”
  • “The Fed started cautiously shrinking its balance sheet last year. This month the ECB’s bond-buying fell by half to €30bn a month, and analysts expect the program to end this year. For the first time in a decade, central banks will probably be withdrawing money from markets by the end of 2018.”
  • “The primary cause for this week’s bond ructions — which saw the 10-year Treasury yield rise to a nine-month high of nearly 2.6% — was data that showed the BoJ’s purchases of long-dated bonds had slowed, with the sell-off then exacerbated by reports, later denied, that China was considering reducing its Treasury purchases.”
  • “While the Japanese central bank will still buy as many bonds as needed to keep the 10-year government yield pinned at zero, the deceleration was enough to cause the global debt market to shiver. ‘The market reaction shows just how sensitive it is to any whiff of the central banks being less aggressive,’ Mr Peters (Gregory Peters, a senior portfolio manager at PGIM Fixed Income) says.”
  • “At the same time, supply of freshly-issued government debt is expected to rise. In 2017, the central banks of the US, Europe, Japan and the UK bought about $170bn more government bonds than were issued, meaning the net supply actually contracted. But BNP Paribas estimates that markets will have to absorb $600bn of debt in 2018.”
  • “Another potential risk for investors is whether 2018 is the year when inflation finally emerges from its slumber.”
  • “Ageing demographics is pushing a global savings glut into safer fixed income and helping keep inflationary forces at bay, aided by technology that is proving to be a deflationary force across a range of global industries. Jim Reid, a Deutsche Bank strategist, says that bond market squalls might become more frequent as central banks tighten their monetary spigot, but argues that it would take accelerating inflation ‘to really turbo charge any bond sell-off’.”
  • “Derivatives contracts indicate that investors believe the 10-year Treasury yield will be below the 3% mark in two, five and even 10 years’ time. Equivalent German and Japanese bond futures show that investors think their benchmark bond yields will stay below 2% and 1% respectively over the same timeframes.”
  • “Highlighting the ravenous demand for safe fixed income returns, droves of buyers were attracted this week to the auctions of 10 and 30-year US government debt, helping quell the turbulence.”

Real Estate

AZ Republic – Home buyers with popular millennial names buying more Arizona homes, analysis says – Catherine Reagor 1/14

FT – Chill winds in Swedish housing market – Katie Martin 1/15

Finance

NYT – What’s $27 Billion to Wall Street? An Alarming Drop in Revenue – Emily Flitter and Kate Kelly 1/11

  • “For more than a decade, the world’s top investment banks practically minted money from the buying and selling of bonds, currencies and other complex securities. For many banks, the business became their lifeblood.”
  • “Now, a combination of tough regulations, new technologies, calm markets and changing customer behavior has left that type of trading a shadow of its former self — and much of Wall Street trying to redefine itself.”
  • “Five years ago, fixed-income trading — so called because its keystone product, bonds, typically provides a fixed payout — generated nearly $103 billion in income for the top 12 investment banks, according to Coalition, a London research firm.”
  • “By 2016, that had fallen to less than $76 billion — down $27 billion from the peak.”

FT – Bitcoin investors struggle to cash out new fortunes – Kate Beioley and James Pickford 1/12

  • “UK mortgage lenders refuse to accept deposits because of money laundering fears.”

 

January 12, 2018

Perspective

WSJ – Advisers at Leading Discount Brokers Win Bonuses to Push Higher-Priced Products – Jason Zweig and Anne Tergesen 1/10

  • “At Fidelity, Schwab and TD Ameritrade, employees win extra pay and other incentives to put clients in products that are more lucrative for them, and the firm.”

Worthy Insights / Opinion Pieces / Advice

Bloomberg View – Even Cynics Can Love Crypto – Matt Levine 1/11

  • “There are no true believers in pump-and-dump; only those who get in early and profit.”

FT – A bitcoin bubble made in millennial heaven – Roula Khalaf 1/10

MarketWatch – The man who called a new bull market in 2012 says take your profits now – Howard Gold 1/11

Mauldin Economics – The Moment of Truth for the Secular Bond Bull Market Has Arrived – John Mauldin 1/10

Markets / Economy

NYT – Investors Spooked at Specter of Central Banks Halting Bond-Buying Spree – Landon Thomas Jr. 1/10

  • “All told, the three central banks are sitting on $14 trillion in securities they have bought since 2009: a $4.4 trillion mix of Treasuries and mortgage securities held by the Federal Reserve; the European Central Bank’s $5 trillion in corporate and government bonds; and $4.5 trillion worth of bonds and exchange traded funds accumulated by the Bank of Japan.”
  • “Moreover, the view that the United States government, in the wake of the tax cut package, will have to issue more securities to finance a larger budget deficit is giving bond investors pause.”
  • “’The U.S. is about to issue a whole lot more debt in an environment where the demand for that debt is about to go down,’ said Daniel W. Drezner, a professor of international politics at the Fletcher School of Law and Diplomacy at Tufts University. ‘What that means is interest rates are about to go up’.”
  • “And that is bad news for bond investors.”

Real Estate

WSJ – Manhattan Rent Fell 2.7% in December to Median of $3,295 – Josh Barbanel 1/11

WSJ – Malls May Be Dying, But Bets Against Their Debt Haven’t Paid Off – Esther Fung 1/9

Energy

FT – New York sues big oil companies over climate change – Attracta Mooney and Ed Crooks 1/10

Finance

FT – Bitcoin tumbles as South Korea plans trading ban – Song Jung-a and Bryan Harris 1/10

WSJ – Bond Markets Have Picked Up the Wrong Signal From Japan – Anjani Trivedi 1/11

WSJ – Chinese Dragon Still Needs U.S. Treasurys for Its Hoard – Nathaniel Taplin 1/11

South America

WSJ – Daily Shot: Venezuela Monetary Base 1/10

WSJ – Daily Shot: Venezuelan Bolivares to USD Black Market Exchange Rate 1/10

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.”