A subsidiary of China’s largest construction group
has suspended work on one of the nation’s tallest skyscrapers after the
developer became the latest in a string of companies to default on a payment.
The default highlights the growing challenges faced
by China’s construction groups as the slowing economy trims credit supply,
putting the once runaway mega-tower building boom under stress.
In an October 30 letter seen by the Financial Times,
China Construction Third Engineering Bureau Co said it would halt construction
on a 475m-high (1,558ft) skyscraper in the central city of Wuhan. It said
Greenland Group, one of the nation’s largest property companies, had failed to
make “a significant” project payment.
Other cash-strapped property developers have also
been struggling to keep their tall-building projects afloat. FT research
reveals that construction of more than a dozen super tall skyscrapers, defined
as buildings higher than 300m (984ft), has been postponed or is behind
Among them is Zhongnan Center in the eastern city of
Suzhou. Construction of the 729m (2,392ft) skyscraper would make it the second
highest in the world if it were ever completed, but building work stalled
shortly after construction began in 2015.
If the Wuhan Greenland Center construction does
proceed, it still faces an uncertain future. Office buildings in Wuhan reported
a 36.2 per cent vacancy rate, a near record high, in the third quarter of this
year, according to Jones Lang LaSalle, which expects the ratio to keep rising
as anticipated new supply floods in.
Until recently, Greenland had been able to rely on
selling expensive residential apartments, which it would develop adjacent to
its multi-use mega buildings, to insure itself against any potential losses
from empty office space. The strategy, however, is under pressure as sales of
luxury homes have fallen off owing to the cooling economy and a crackdown on
“There is a fundamental problem with Greenland’s
business model,” said Mr Li. “It doesn’t take into account an economic
It’s not your imagination: Concert ticket prices are
going through the roof.
And not just for the super wealthy who pay thousands
of dollars to see the best acts from the front row. Fans of all types are
paying more to see their favorite musicians.
The average price of a ticket to the 100 most popular
tours in North America has almost quadrupled over the past two decades, from
$25.81 in 1996 to $91.86 through the first half of this year, according to
researcher Pollstar. Along with pro sports and Broadway shows, concert prices
have far outpaced inflation.
Some of that increase was out of necessity. As piracy
eroded music sales, artists began to lean heavily on concerts. Stars like
Beyonce and Taylor Swift can make more in a couple nights onstage than they can
from a year of album sales. But something else was going on, too. Ticket
sellers like Ticketmaster and AEG’s AXS began adopting technology that showed
fans would pay almost any price for their favorite acts, especially stars who
only come around every few years.
“We all undervalued tickets for many, many years,”
said Joe Killian, who runs a media consulting firm and founded a concert series
in New York’s Central Park.
Higher prices have been good for the concert
business. The live-music industry surpassed $8 billion in revenue in 2017, and
is on pace for another record in 2019. Live Nation Entertainment Inc., which
owns Ticketmaster, touts its ability to charge higher prices.
It’s not just tickets, either. Music fans also face
skyrocketing prices for food, beverages and merchandise. The average fan spent
$20 at events in 2016 staged by Live Nation, the world’s largest promoter. This
year, that figure is expected to reach $29, an increase of almost 50%.
If artists’ growing reliance on live music has led to
any guilt about appearing greedy, the rise of ticket resale sites like StubHub
took care of that. For years, entertainers watched as scalpers vacuumed up
tickets and resold them for far more on such exchanges. Agents took this as
proof that tickets were underpriced — and their artists underpaid.
Ticketmaster and others have since developed the
ability to change pricing at any moment, enabling artists to charge more
upfront and keep more of the dollars that went to scalpers. They can also
reduce prices closer to show time if tickets aren’t selling, or create special
windows for true fans.
Not every artist has embraced the new philosophy. Ed
Sheeran booked the highest-grossing tour of all time while charging less than
$100 a ticket, making him one of the cheapest of the top tours. He is adamant
that his show be affordable to all his fans.
UBS plans to levy a negative interest rate on wealthy
clients who deposit more than SFr2m (USD $2M) with its Swiss bank, as lenders
hunker down for a period of ultra-loose monetary policy.
Several banks in Switzerland and the eurozone already
pass on the cost of negative official rates to corporate depositors, although
most large players have refrained from doing so with individual clients.
But with policymakers expected to adopt a “lower for
longer” stance for the foreseeable future, UBS Switzerland will from November
charge 0.75% a year on individual cash balances above SFr2m, according to three
people briefed on the plans.
The move underscores how banks in Europe and the US
are scrambling to prepare for a protracted spell of lower rates that threatens
their profitability, having previously wagered that central bankers would
tighten monetary policy.
“We assume that this period of low interest rates
will last even longer and that banks will continue to have to pay negative
interest rates on customer deposits at central banks,” UBS said. “Following
similar moves by a number of other banks here in Switzerland, we confirm that
we’ve decided to adjust cash deposit fees for Swiss francs held in
The move comes as Credit Suisse, UBS’s main rival,
said on Wednesday it was also thinking about imposing a levy on some wealthy
now an extremely insightful piece from Robin Harding of the Financial Times.
This one is in its entirety with some emphasis made in bold (mine).
This will be a discomforting, defining week for the
global economy. That is not because the US Federal Reserve is set to cut
interest rates. Rather it is because of the strikingly low level of rates from
which the Fed will start: a range of just 2.25% to 2.5%.
After more than a decade of economic expansion, and
despite everything from tariffs to tax cuts, it seems this is as high as US
interest rates go. Meanwhile, the European Central Bank is debating whether to
reduce its negative rate still further. Until this month, it was possible to
imagine that pre-financial crisis levels of 4% to 5% might eventually return.
According to their own projections, Fed officials
believe rates will settle at 2.5% in the long run. Subtract their 2% inflation
target and the real reward for capital is going to be a miserable 0.5%. The
equivalent rate in Europe and Japan will almost certainly be much lower. Such
low levels of interest rates are a profound change from the past. (The federal
funds rate was 6.5%, and the real rate was about 4% as recently as 2000.)
Although interest rates touch almost every aspect of economic life, the developed
world remains deep in denial about the consequences. Here are eight themes for
investors and policymakers to ponder.
First, there is an intimate link between long-run
interest rates and long-run economic growth. Perhaps capital is less relevant
to the digital economy, but for interest rates to max out at such low levels
sends an alarming signal about the prospects for future expansion.
Second, monetary policy is broken. In 2008-09, the
Fed cut rates by 5 percentage points and it was not enough. Today it has far
less room to respond to a recession. The Bank of Japan, which made no move on
Tuesday, has all but given up trying to hit its 2% inflation target. The ECB is
in danger of going the same way. The world is dismally unprepared for a
downturn: two of the world’s most influential central banks may start the next
recession with their policy rate already below zero.
Third, if monetary policy is broken,
fiscal policy must step in. That means either governments must approve higher
spending and tax cuts in response to a recession or else give the central bank
a fiscal tool in the form of “helicopter money”, essentially printing money to
spend or distribute to the public.
Alternatively, governments could set higher inflation targets and use fiscal
policy to reach them now. That would give their central banks more room to cut
when they need it.
Fourth, lower interest rates make
debt more sustainable. This is particularly true for public debt, because
countries actually borrow at these low risk-free rates, and somewhat true for
private debt. For many countries, it makes sense to borrow more in order to
invest. Predictions of financial crisis based on past levels of debt-to-gross
domestic product are likely to be misleading.
Fifth, capital stock should rise
relative to output. Investments that were once unprofitable now make sense:
road upgrades to save a few minutes of time; expensive, niche drugs to help a
few hundred people; or extra years of study to earn a graduate degree. Such
projects may feel irrational. They are not.
Sixth, any asset in fixed supply is now more
valuable, because its future cash flows can be discounted at a lower rate. A
monopoly supplier of water or electricity, land in a city center or the back
catalogue of Disney: the capital value of these assets must rise, so their
yield matches the lower interest rates. This trend is related to recent
movements in wealth inequality. It also puts investors at risk of identifying
financial bubbles that do not actually exist. One vital policy response would be to slash the return
on capital allowed to utilities.
Seventh, demand for housing will rise. It is, after all, the main capital asset that most people use. There are two potential outcomes. Where it is possible to build, permanently lower interest rates will trigger an increase in the housing stock. If it is not possible to build, then houses will behave like assets in fixed supply, and soar in price. Thus falling interest rates make planning and zoning rules a crucial economic issue.
Eighth, low interest rates make it harder to save. In
particular, they make it harder to save for a pension, and harder to live off
whatever capital accumulates. This fact has been obscured by the one-off rise
in price for scarce assets, many of which are owned by pension funds. But
future returns are likely to fall. The result will force workers to accept some
combination of later retirement, higher taxes, bigger pension contributions or
lower incomes in old age.
It is possible that this bout of low interest rates
will end. Perhaps the Fed is mistaken and it will have to raise rates sharply
in the future. Perhaps a burst of technological progress will raise growth and
boost demand for capital.
But no one can choose to make that happen: this is not some perverse plot by Fed chair Jay Powell and ECB president Mario Draghi to make life miserable for the world’s savers.The long-run real interest rate balances the desire to save and demand to invest. Central banks are its servants not its masters.
The trend towards lower real
interest rates has lasted for decades and is as likely to continue as to
reverse. With central banks moving to ease, it is time to stop waiting for
rates to recover and face the world as we find it.
“As long as Chinese investors can make money gambling on housing – and companies can make money building or selling them – weakness in the stock and bond markets may not be enough to trigger a full-scale stampede out of the yuan.”
“Panic or no panic, a weaker Chinese currency in the months ahead still seems likely.”
“Katerra saves money by buying everything from wood to toilets in bulk and using software and sensors to closely track materials, factory output, and construction speed. Its architects use software to build a catalog of standard buildings, rather than starting from scratch on each project, and to ensure contractors aren’t making impulsive structural decisions. Each generation of buildings has become steadily more prefab, requiring less work on-site and speeding construction.”
“…but Katerra has a lot of serious worries. While there are only a few standard models of iMac or Xbox, apartments are beholden to 110,000 U.S. municipalities’ building codes, each with its own idiosyncrasies. Regional seismic and weather needs can vary widely. And Katerra’s aim to steadily cut labor costs, meaning jobs, won’t exactly endear it to the industry.”
“The shutdown of a key oil-sands facility in Canada is flipping the global oil market on its head and slamming shares of producers that depend on the plant.”
“Just as OPEC and allied producers agreed to pour more oil into global markets, a transformer blast first reported by Bloomberg News last week cut power to Alberta’s giant Syncrude plant, which turns heavy crude into synthetic light oil for U.S. markets.”
“As less oil flows from up north, traders are paying a record premium for crude at America’s biggest distribution hub in Cushing, Oklahoma. Globally, the gap between Brent crude and West Texas Intermediate is narrowing rapidly after widening for months. Goldman Sachs Group Inc. called the shutdown the most dramatic event in the oil market last week, as opposed to OPEC’s meeting in Vienna. Shares of Suncor Energy Inc., which controls the plant, plunged the most in more than two years.”
“The 350,000-barrel-a-day facility, one of the biggest of its kind in the world, is going to be out of commission until the end of July, the company said.”
“While Saudi Arabia’s push to make sure OPEC boosts supplies by close to 1 million barrels a day is strongly weighing down on Brent crude futures in London, the shortage in Canada is supporting U.S. prices. That’s helping narrow the gap between the two benchmarks, reversing months of widening when the focus was on record production from shale fields. It has global implications because the premium helps buyers around the world decide whether to ship crude from the U.S. or elsewhere.”
“A new study has confirmed what we’ve long expected: Facebook is no longer the most popular social media site among teens ages 13 to 17.”
“The Pew Research Center revealed on Thursday that only 51% of US teens use Facebook. That’s a 20% drop since 2015, the last time the firm surveyed teens’ social media habits.”
“Now, YouTube is the most popular platform among teens — about 85% say they use it. Not surprisingly, teens are also active on Instagram (72%) and Snapchat (69%). Meanwhile, Twitter (TWTR) followed at 32%, and Tumblr’s popularity (14%) remained the same since the 2015 survey.”
“When it comes to the platform they access most frequently throughout the day, Snapchat is king.”
“Although the study was only conducted among nearly 750 teens in a one month period starting this spring, the new numbers might be worrying for Facebook. The company recently rebounded from its first-ever decline in users in the US and Canada. But overall, its global growth has slowed. The two countries account for 185 million daily users.”
“But Daniel Ives, chief strategy officer and head of technology research at GBH Insights, argues Facebook-owned Instagram-owned is more important to the parent company than Facebook itself when it comes to younger users.”
“‘Instagram has captured that demographic better than anyone could have expected,’ Ives said. The numbers highlight ‘why Instagram is one of the best tech acquisitions done in the past 15 years.'”
“Last year’s most successful adult comedy, Girls Trip, took in $117 million in the U.S. and Canada. The last time the year’s highest-grossing comedy grossed so little was 1995, when tickets cost 52% less on average.”
“It wasn’t an anomaly. The five most successful adult comedies grossed an average of $141 million in 2013, $109 million in 2015 and just $85 million last year.”
“So far in 2018, the biggest live-action comedy has been Game Night, which took in just $69 million. Melissa McCarthy’s Life of the Party, has grossed $52 million, her lowest-grossing comedy ever. Amy Schumer’s I Feel Pretty is finishing its box office run with $49 million, less than half of her debut hit Trainwreck. Action Point, from the producer and star of Jackass, has grossed just $5 million, compared with $117 million for Jackass 3-D in 2010.”
“Just five years ago, things were quite different. In 2013, Ms. McCarthy and Sandra Bullock’s The Heat and the raucous R-rated We’re the Millers each grossed more than $150 million domestically. Another movie with Ms. McCarthy, Identity Thief, was close behind with $135 million. Grown Ups 2, Anchorman 2, Bad Grandpa, This is the End and even the widely maligned Hangover Part III all exceeded $100 million in domestic ticket sales.”
“Now, the only major comedy hits are those made for children. Peter Rabbit, featuring computer-generated critters that outsmart real-life adults, grossed a healthy $115 million in February, and animated comedies like Despicable Me 3 and The Boss Baby were top grossers last year.”
“The Incredibles 2, which mixes family-friendly action, comedy and drama, scored a massive $182.7 million in its opening weekend.”
“Though certain subgenres like romantic comedy have nearly disappeared, most studios aren’t yet abandoning adult comedy. They have, however, slashed spending on them so that they can potentially become profitable on lower grosses than were needed in the past. No comedy stars earn the $20 million per picture that Messrs. Carrey and Sandler and Ms. Roberts sometimes did in the past.”
“Tag is a recent example of the new approach. Made for just $28 million, it features no major comedy stars and was sold primarily on its concept, a real-life story about grown friends in a decades long game of tag that was based on a Wall Street Journal article.”
“’There was a time when comedies were being made for $70 million. Then $45 million. Now the sweet spot is in the 20s,’ said Todd Garner, a producer of Tag who previously produced comedies starring Mr. Sandler.”
“Apathy towards climate change is common across the Middle East and north Africa, even as the problems associated with it get worse. Longer droughts, hotter heatwaves and more frequent dust storms will occur from Rabat to Tehran, according to Germany’s Max Planck Institute for Chemistry. Already-long dry seasons are growing longer and drier, withering crops. Heat spikes are a growing problem too, with countries regularly notching lethal summer temperatures. Stretch such trends out a few years and they seem frightening—a few decades and they seem apocalyptic.”
“The institute forecasts that summer temperatures in the Middle East and north Africa will rise over twice as fast as the global average. Extreme temperatures of 46°C (115°F) or more will be about five times more likely by 2050 than they were at the beginning of the century, when similar peaks were reached, on average, 16 days per year. By 2100 ‘wet-bulb temperatures’—a measure of humidity and heat—could rise so high in the Gulf as to make it all but uninhabitable, according to a study in Nature (though its most catastrophic predictions are based on the assumption that emissions are not abated). Last year Iran came close to breaking the highest reliably recorded temperature of 54°C (129°F), which Kuwait reached the year before.”
“Water presents another problem. The Middle East and north Africa have little of it to begin with, and rainfall is expected to decline because of climate change. In some areas, such as the Moroccan highlands, it could drop by up to 40%. (Climate change might bring extra rain to coastal countries, such as Yemen, but that will probably be offset by higher evaporation.) Farmers struggling to nourish thirsty crops are digging more wells, draining centuries-old aquifers. A study using NASA satellites found that the Tigris and Euphrates basins lost 144 cubic kilometers (about the volume of the Dead Sea) of fresh water from 2003 to 2010. Most of this reduction was caused by the pumping of groundwater to make up for reduced rainfall.”
“Climate change is making the region even more volatile politically. When eastern Syria was ravaged by drought from 2007 to 2010, 1.5m people fled to cities, where many struggled. In Iran, a cycle of extreme droughts since the 1990s caused thousands of frustrated farmers to abandon the countryside. Exactly how much these events fueled the war that broke out in Syria in 2011 and recent unrest in Iran is a topic of considerable debate. They have certainly added to the grievances that many in both countries feel.”
“The mere prospect of shortages can lead to conflicts, as states race to secure water supplies at the expense of downstream neighbors. When Ethiopia started building an enormous dam on the Nile, potentially limiting the flow, Egypt, which relies on the river for nearly all of its water, threatened war. Turkish and Iranian dams along the Tigris, Euphrates and other rivers have raised similar ire in Iraq, which is beset by droughts.”
“Politics often gets in the way of problem-solving. Countries are rarely able to agree on how to share rivers and aquifers. In Gaza, where the seepage of saltwater and sewage into an overused aquifer raises the risk of disease, a blockade by Israel and Egypt has made it harder to build and run desalination plants. In Lebanon there is little hope that the government, divided along sectarian lines, will do anything to forestall the decline in the water supply predicted by the environment ministry. Countries such as Iraq and Syria, where war has devastated infrastructure, will struggle to prepare for a hotter, drier future.”
“China’s carbon emissions are on track to rise at their fastest pace in more than seven years during 2018, casting further doubt on the ability of the Paris climate change agreement to curb dangerous greenhouse gas increases, according to a Greenpeace analysis based on Beijing’s own data.”
“The latest finding comes as climate researchers express concern over rising emissions in China, which accounts for more than a quarter of global carbon dioxide output.”
“Global emissions were flat from 2014-16 but began rising again in 2017 as the Chinese economy recovered and as emission grew in the EU and the rest of Asia. Scientists are concerned the trend in China will continue this year.”
“Although China has invested heavily in renewable energy such as wind and solar, a key reason for its emissions growth is rising demand for oil and gas due to increased car ownership and electricity demand.”
“KPMG has said its annual audits of 1Malaysia Development Berhad from 2010 to 2012 were unreliable after information was withheld by former 1MDB managers, the scandal-hit fund said.”
“’If the documents had been disclosed to the auditors, KPMG believed the information would have materially impacted the financial statements and the relevant audit reports,’ the fund said in a statement on Tuesday.”
“The wealth fund, which was established in 2009 under then-prime minister Najib Razak, is the focus of a global corruption investigation, with authorities alleging that $4.5bn has gone missing.”
“The allegedly omitted audit details came to light after the new government of Mahathir Mohamad — which won power in a stunning election victory in May — released an auditor-general’s report into 1MDB that had been classified under the previous administration.”
“KPMG was sacked as 1MDB auditor at the end of 2013 after raising concerns about more than $2.3bn said to have been held in the Cayman Islands on behalf of the fund, according to an auditor-general draft report seen by the Financial Times in 2015.”
“The accounting firm was unhappy because 1MDB would not share documents KPMG wanted to help it assess the fund’s financial activities linked to the Caribbean islands.”
“It was an important demand, if one with little hope of success. On May 29th the Netherlands’ foreign minister, Stef Blok, insisted at the UN Security Council in New York that Russia ‘accept its responsibility’ in the downing of Malaysian Airlines flight MH17. The airliner was shot down by an anti-aircraft missile over Ukraine in 2014, killing 196 Dutch nationals, 38 Australians and 64 others. Last week a UN-mandated Joint Investigation Team (JIT), led by Dutch prosecutors, announced it had determined that the missile belonged to a unit deployed to the area by the Russian Army’s 53rd anti-aircraft brigade, presumably to help Russian-backed secessionists fighting the Ukrainian army.”
“The Kremlin has always denied any involvement in the downing of MH17 or the war in Ukraine. (Asked about the JIT’s findings, Mr Putin responded, ‘Which plane are you talking about?’) Instead it has spread conflicting alternative theories blaming the Ukrainians, often backed up with demonstrably fake evidence. But the investigators’ dossier is voluminous. It includes photos and video taken by passers-by that track the convoy carrying the missile from its base near Kursk, in Russia, to the Ukraine border. The JIT also has the fuselage of what appears to be the missile itself, recovered near the crash site. The Netherlands and Australia now say they will hold Russia accountable for its role, and want negotiations on a settlement.”
“Chinese airlines are buying foreign flying schools and poaching pilots, amplifying a talent shortage that has affected airlines in other regions.”
“’The growth in Chinese aviation is unprecedented in our lifetimes and probably in history,’ said Paul Jebely, a Hong-Kong-based lawyer specializing in aviation. ‘There have been more aircraft ordered than there are pilots to fly them’.”
“The squeeze on flying talent has triggered flight cancellations, dented profits and threatened the industry’s ambitious growth targets around the world.”
“China is on course to overtake the US as the world’s largest air travel market by 2022, according to the International Air Transport Association.”
“US aircraft maker Boeing predicts China will need 110,000 new pilots in the years through to 2035, and its airlines are expected to purchase 7,000 commercial aircraft over the next two decades.”
“China’s aviation market grew by 13% last year, with 549m passengers taking to the skies, double the number who flew in 2010. Growth is being driven by the rising middle class, an expansion of routes by Chinese airlines and the easing of visa restrictions by foreign governments keen to attract Chinese tourists.”
“The number of pilots and co-pilots working in China almost doubled between 2011 and 2017. Over recent months China’s main airlines — China Eastern, Air China, China Southern and Hainan Airlines — have stepped up recruitment and are expanding their offshore training.”
“The starting salary offered to foreign pilots in China has jumped over the past 10 years from $10,000 per month to $26,000 per month, tax free, and was still rising, he said.”
“’Some Chinese airlines are offering tax-free salary packages, which can be up to twice what western airlines offer,’ said Murray Butt, president of the Australian and International Pilots Association.”
“India’s surging air travel — where passenger numbers have been growing by an average of about 16% a year since the beginning of the millennium — adds more pressure to the global pilot shortage.”
“Having seen rapid growth in passenger numbers over the past few years, Indian airlines have been recruiting from the military, from abroad and from their competitors by offering increasingly lucrative contracts. They have also made it more difficult for pilots to leave, forcing commanding officers to give a year’s notice if they wish to leave.”
“Chinese airlines pay the tuition of cadet pilots and are intensifying efforts to develop more local talent. But there are only 22 pilot schools in China and restrictions on the use of domestic airspace mean they are increasingly looking overseas to partner with foreign flights schools.”
“Almost half of China’s 5,053 trainee pilots last year were trained abroad, creating a flourishing business for flight schools and their owners in the US, Canada and Australia.”
“It isn’t rare for a handful of big movies to do much better than anything else during the same year, but over the past few years the differences have become more acute. One way to see this is by applying a standard measure of inequality—the Gini coefficient—to the box office. A Gini of zero would mean all the movies did equally well and a Gini of one would mean one movie made all the money.”
“Based on the domestic receipts of the top 100 grossing movies, the box office Gini for last year’s releases was 0.49, versus 0.46 for 2016. Over the previous 10 years, the Gini averaged 0.4 so there has been a big change in an already skewed field. For comparison’s sake, the Gini coefficient for after-tax household income is 0.39 in the U.S. versus 0.46 in Mexico, according to the Organization for Economic Cooperation and Development.”
“The uninsured rate rose by statistically significant margins in 17 states in 2017, the first time since the full implementation of the major mechanisms of the Affordable Care Act (ACA) in 2014 that any state had a rate increase. Also, for the first time since 2013, no states had a lower uninsured rate than the previous year.”
“This year’s box office so far has been a story of one completely dominant movie, ‘Black Panther,’ highlighting a potentially troubling trend for Hollywood in which ticket sales are increasingly concentrated among just a few ultra-successful pictures.”
“With $650.7 million and counting, ‘Black Panther’ is on track to become the third highest grossing movie ever in the U.S. and Canada. It accounted for 23% of all ticket sales in the first three months of the year, ending Saturday, according to comScore. That is the second-highest percentage ever behind only ‘Titanic,’ which took 25% in the winter of 1998.”
“’Black Panther’ is an extreme example of the trend that Hollywood has been struggling with for some years. In 2015, 2016 and 2017, the top 10 movies raked in between 32% and 35% of total box office, comScore said. Previously, that figure never exceeded 30%. So far this year, it is 58%.“
“After a decade as one of the world’s hottest housing markets, Toronto is moving in two directions. Transactions have certainly cooled since May as the government introduced new rules to tame runaway prices. But the impact has been largely on big, expensive detached homes, with sales plunging 41% in February from a year earlier, and prices dropping 12% since hitting a record last year. Condo prices, in contrast, soared about 20% since last February.”
“The deviation is largely as a result of mortgage regulations that went into effect on Jan. 1 as well as rising interest rates. The rule requires that even people with a 20% down payment, who don’t require mortgage insurance, prove they can make payments at least 2% points above the rates under which they go into contract.”
“That’s pushing buyers out of the detached segment and right into the condo market.”
“Thousands of online lenders could be facing extinction as China rolls out a new licensing framework, amid complaints about a lack of clarity on how the regime will work.”
“P2P platforms match borrowers with investors online. China’s P2P lending industry recorded transactions valued at $445bn in 2017, according to Online Lending Club, a data company.”
“Many P2P lenders, including one of the largest, Hongling Capital, were weeded out in crackdowns in 2016 and 2017 after agencies reporting to China’s central bank began closing fraudulent platforms and those selling high-interest loans.”
“Of more than 6,000 online lending platforms launched over the past several years, fewer than 2,000 were still in operation at the end of February, according to Online Lending House, a data provider — a sign of how regulation, competition and fraud have thinned the industry’s ranks.”
“As part of the regulatory overhaul, P2P lenders are barred from guaranteeing principal or interest on loans they facilitate; are limited to loans of no more than Rmb1m ($159,000) for individual borrowers and Rmb5m for companies; and must use custodian banks.”
“After years of delay and quiet opposition from vested interests, China will push ahead with a property tax that is viewed as crucial to taming the country’s housing bubble.”
“House prices in major Chinese cities are among the highest in the world in terms of price-income ratios, with speculative demand from Chinese investors — who see few other good places to park their savings — as a major driver. The result is an estimated 50m empty homes, according to a broad survey by researchers from Southwestern University of Finance and Economics in Chengdu.”
“A landmark blueprint for economic reform that the Communist party leadership approved five years ago included a pledge to push ahead with a property tax. But a subsequent slowdown in the economy, including a housing-market downturn in 2014-15, prompted authorities to shelve those plans.”
“Quiet opposition from wealthy urbanites, including government officials who own multiple homes, also hindered progress.”
“’When will the tax actually come out is difficult to say, but at least the intention has strengthened,’ said Chen Shen, head of property research at China Securities in Shanghai. ‘Two years ago everyone was discussing whether it would ever happen, but now it’s very clear that it will’.”
WSJ – Daily Shot: @NickTimiraos – Change in Home Prices – Japan & U.S. 4/2
“The virtual currency boom has gotten so heated that it is throwing the list of the world’s richest people into disarray.”
“Consider what has happened to the founders of an upstart virtual currency known as Ripple, which has seen its value skyrocket in recent weeks.”
“At one point on Thursday, Chris Larsen, a Ripple co-founder who is also the largest holder of Ripple tokens, was worth more than $59 billion, according to figures from Forbes. That would have briefly vaulted Mr. Larsen ahead of Facebook chief executive Mark Zuckerberg into fifth place on the Forbes list of the world’s richest people.”
“Other top Ripple holders would have also zoomed up that list as the value of their tokens soared more than 100% during the last week — and more than 30,000% in the last year. The boom has turned Ripple into the second largest virtual currency, within striking distance of the original behemoth, Bitcoin.”
“While most of these currencies were worth nearly nothing a year ago, many are now responsible for creating billionaires — albeit with rapidly fluctuating fortunes. If this is a tulip fever, the fever has spread to chrysanthemums and poppies.”
“Ripple, whose tokens are known as XRP, is far from the only virtual currency being fueled by the hysteria. In 2017, there were 29 tokens — including Einsteinium and Byteball — that rose more than Bitcoin’s remarkable 1,600% jump, according to OnChainFx, a data provider.”
“Nearly 40 virtual currencies are worth more than $1 billion — when all the outstanding tokens are counted at their current value — despite many of them not having been used in any sort of transaction other than speculative trading.”
For perspective, “… all the outstanding Ripple tokens were worth $140 billion on Thursday, while all Bitcoin were worth $250 billion.”
“Mr. Larsen was Ripple’s chief executive from 2012 until he stepped down last year to become the company’s executive chairman. During his tenure, Ripple focused on helping banks use its software to shift money between different foreign currencies, something that most banks currently do through a cumbersome process involving separate accounts in every country where they operate.”
“Ripple has said it has signed up more than 100 banks to use the company’s technology, including American Express and Banco Santander.”
“But banks do not need to use Ripple tokens for Ripple’s software to transfer dollars, euros and yen. That point appears to be lost on many small time investors who are buying Ripple tokens.”
“Most of the buying and selling of Ripple tokens is happening in South Korea, according to data providers that track virtual currency exchanges, where ordinary investors have thrown money at a wide array of virtual currencies.”
“…Even virtual currency analysts who believe in Ripple’s software have said there is a big difference between Ripple the company being successful, and Ripple the token gaining enough traction to justify current prices.”
“’An impossibly long list of things already needs to go right for XRP to become a reserve currency for banks,’ Ryan Selkis, a virtual currency analyst, wrote in a post on Thursday.”
“But, Mr. Selkis added, that doesn’t mean Ripple’s price won’t keep ascending. Why? ‘Because this is crypto, and everyone in the industry is now slinging crack crypto cocaine to retail addicts,’ he wrote.”
“Though the U.S. saw $112 billion of mobile payments in 2016, by a Forrester Research estimate, such payments in China totaled $9 trillion, according to iResearch Consulting Group, a Chinese firm.”
“For Alibaba and Tencent, the payoff isn’t just the transaction fees they make from merchants, typically 0.6%. It’s also the consumer data collected, which can transform their apps into marketing platforms for an expanding array of services, from bike sharing to travel.”
“Conditions in China made it ripe for this innovation. Credit cards never caught on in a big way. Discretionary spending wasn’t an option for most people until recent years, and there has long been a cultural aversion to debt in China. On top of that, the government made it tough for Visa Inc. and Mastercard Inc. to set up shop.”
“The rise of tech companies as financial powers has dealt a blow to traditional banks. China’s state-owned banks lost nearly $23 billion in fees in 2015 they might have collected from card fees, according to a November 2016 report from EY (formerly Ernst & Young) and Singapore’s DBS Bank. The report projected the annual fee loss could widen to $60 billion by 2020.”
“The larger problem for banks might be that Alibaba and Tencent often know more about their customers than they do. If a Beijing car dealer uses a bank debit card for a business trip to Shanghai, the bank knows what airline he or she flew, as well as the hotel and restaurants patronized. ‘But if the ‘customer interface’ is happening elsewhere, the bank has zero visibility over transactions,’ said James Lloyd, Asia-Pacific FinTech Leader at EY. ‘That’s not a good situation to find yourself in’.”
“Tencent and Alibaba say they have no plans to push their payment platforms to U.S. consumers. Many Americans don’t see the need for mobile payments, since their plastic cards and cash are welcomed and some merchants still accept checks.”
“’Any new way of paying has to prove itself to be incrementally better than any other options you have,’ said James Wester of research firm IDC Financial Insights. In the U.S., ‘plastic is convenient, widely accepted and understood by the customer’.”
“If the big US tax cut that brought 2017 to a conclusion has its intended consequences, then capital expenditures will start to rise in the next year, as will wages. With consumer confidence high, that should lead to higher consumption. It would also lead to monetary policy at the tightest end of what currently seems probable. The European Central Bank and Bank of Japan would indeed desist from their asset purchases, the Federal Reserve would reduce its balance sheet, and liquidity would flow out of world markets. The Fed could be expected to raise rates four times.”
“This would be a consummation devoutly to be wished, vindicating both the belated fiscal stimulus that the US has just administered and the desperate muddle-through strategy that preceded it. But significantly higher rates and lower liquidity would be bad news for equity markets, which look historically expensive. High valuations can be justified while rates are historically low. Future earnings can be discounted at a low rate and the cash yields on stocks look attractive. But if all goes according to the US Republican party’s plan, interest rates will need to be significantly higher a year from now, and valuations will come under pressure.”
“The alternative scenario is that the tax cut achieves no meaningful stimulus, and is merely put towards higher corporate dividends and expensive mergers and acquisitions. The synchronized global economic recovery of the past year peters out, as other brief post-crisis recoveries have done. In this situation, the Fed tightens far less aggressively, other central banks blink and keep buying assets, and bond yields stay where they are, or even fall. On this gloomy prognosis, the legacy of the tax cut would be no more than greater inequality. But equity markets would enjoy much the same benign conditions they have had this year.”
“Amid Wall Street’s bullish prognoses for 2018, an inverse relationship is becoming clear. Those who are more optimistic for the economy tend to be more pessimistic about the prospects for risk assets. Some say they are so bullish they are bearish.”
“This is realistic. If monetary stimulus really does give way to a successful fiscal stimulus, investors should expect much higher volatility, and probably outright price falls, from equity markets.”
“Fund manager to keep 1m sq ft space in Canary Wharf Group towers.”
“Brian Kingston, chief executive of Brookfield Property Partners, said property prices in London had ‘always been high’, but were now ‘very high’.”
“’You would always have people starting out renting, but they would graduate to owning,’ said Mr Kingston. ‘But in New York and London, you could be a fairly well-compensated individual and you could still not afford to buy’.”
“Chinese stockholders are ramping up borrowing against shares, driving revenue for securities houses but creating risk of a chain reaction in the event of a sharp market downturn.”
“Shareholders in 317 Shanghai and Shenzhen-listed companies had pledged shares worth at least 40% of those companies by December 18, up from 224 companies on the same date a year earlier, according to Wind Info.”
“Share-pledging is especially common for small and mid-cap companies, where a single shareholder often owns a large stake. Controlling shareholders sometimes reinvest the proceeds into company projects or buy additional company shares on the secondary market to boost the share price.”
“In September China’s two main bourses published draft rules that would tighten regulation on share pledging. One provision caps the value of loans secured by shares at 60% of the market value of the pledged shares, ensuring a buffer that will protect the lender in case a share price falls.”
At least the mainland exchanges require that such pledges be disclosed, unlike the Hong Kong exchange, where other shareholders can be surprised.
“A federal agency on Thursday imposed tough new restrictions on the so-called payday-lending industry, which churns out billions of dollars a year in high-interest loans to working-class and poor Americans.”
“The rules announced by the agency, the Consumer Financial Protection Bureau, clamp down on, and could largely eliminate, loans that are currently regulated by states and that critics say prey on the vulnerable by charging usurious fees and interest rates. The lenders argue that they provide financial lifelines to those in desperate need of short-term cash infusions.”
“The terms of a typical payday loan of $400 require that $460 be repaid two weeks later — the equivalent of an annual interest rate of more than 300%, far higher than what banks and credit cards charge for loans. Because most borrowers cannot repay their debts quickly, the loans are often rolled over, incurring more fees in the process.”
“Some 12 million people, many of whom lack other access to credit, take out the short-term loans each year, researchers estimate. Payday loans — so called because they are typically used to tide people over until their next paychecks — often entangle borrowers in hard-to-escape spirals of ever-growing debt, according to the consumer bureau.”
“The new rules limit how often, and how much, customers can borrow. The restrictions, which have been under development for more than three years, are fiercely opposed by those in the industry, who say the rules will force many of the nation’s nearly 18,000 payday lenders out of business.”
“Until now, payday lending has been regulated by states, with 15 already having made the loans effectively illegal. In more than 30 other states, though, the short-term loan market is thriving. The United States now has more payday loan stores than McDonald’s outlets. They make around $46 billion a year in loans, collecting $7 billion in fees.”
“The payday-lending rules do not require congressional approval. Congress could overturn the rules using the Congressional Review Act, which gives lawmakers 60 legislative days to nullify new regulations, but political analysts think that Republicans will struggle to get the votes needed to strike down the regulations.”
“Under the new rules, lenders will be allowed to make a single loan of up to $500 with few restrictions, but only to borrowers with no other outstanding payday loans. For larger or more frequent loans, lenders will have to follow a complex set of underwriting rules intended to ensure that customers have the means to repay what they borrow.”
“The restrictions would radically alter the short-term lending market. The number of loans made would likely fall at least 55%, according to the consumer agency’s projections.”
“That would push many small lending operations out of business, lenders say. The $37,000 annual profit generated by the average storefront lender would instead become a $28,000 loss, according to an economic study paid for by an industry trade association.”
“The Spanish courts have ordered the temporary suspension of a special session of Catalonia’s parliament scheduled for next Monday where regional officials were expected to vote on making a unilateral declaration of independence.”
“While the session may still happen in defiance of the courts, the move highlights how Madrid is doing everything in its power to prevent the region from making formal its promises to break away from Spain following Sunday’s referendum.”
“If independence is declared on Monday, Spanish prime minster Mariano Rajoy will likely be forced to resort to the so called ‘nuclear option’ of using article 155 of the constitution, which allows them to suspend the region’s autonomy and remove officials from office.”
“Mr Rajoy has so far been reluctant to use this powerful device, despite pressure by hawkish members of his own party. On Thursday, however, he promised ‘greater evils’ on the Catalan government if they go ahead with declaring independence.”
WSJ – Daily Shot: Deutsche Bank Bank of Japan Ownership of Japanese ETF Market 10/5