If you were only to read one thing…
FT – Venezuela debt restructuring could unleash crisis – John Paul Rathbone 11/3
- “President Nicolás Maduro’s decision to restructure Venezuela’s $89bn of debt is likely to unleash a debt crisis of a size not suffered in Latin America since Argentina’s massive 2001 default, and a bond restructuring that lawyers say would be the world’s most complex yet.”
- “In a televised address on Thursday, Mr Maduro said state oil company PDVSA would make one more $1.1bn debt payment on a bond due in 2017 and then restructure its remaining obligations with banks and investors.”
- “Economists have long-predicted Venezuela would eventually make such a move as funds drained from the socialist government’s vaults to pay bondholders, forcing an 80% cutback in imports over the past five years. Indeed, Venezuelan bonds already trade at default prices, and foreign reserves of $10bn are near 20-year lows.”
- “Yet despite a recession worse than the Great Depression, hyperinflation and falling oil production, debt restructuring was a move Mr Maduro long-rejected. In large part, that was because it could lead to default, and creditors would then seize Venezuelan oil shipments and foreign assets, including PDVSA’S US refinery, Citgo. “
- “As a result, the $7bn that Venezuela might save in 2018 from not servicing its debts would be offset by lost oil exports, and there would be no net gain.”
- “That calculus still holds. Indeed, a desire to remain on good terms with creditors may explain Mr Maduro’s apparently nonsensical decision to restructure debts after making a particularly large bond payment this week — more than $1bn that instead could be used to import desperately-needed medicine and food. (A more cynical rumor is that the money went to government insiders who own the paid 2017 bond.)”
- “Venezuelan imports are forecast to be just $13bn this year. Against that, the country has $63bn of traded debt, owes another $5bn to international lenders such as InterAmerican Development Bank, $17bn to China and another $3bn to Russia.
- One reason why Mr Maduro may feel he can get away with it is that he feels empowered politically at home.”
- “Although Mr Maduro may feel in control domestically, abroad is another matter. Any debt restructuring is complicated by US sanctions imposed in August, which block US-regulated institutions and investors from buying new Venezuelan bonds, as would be issued in a typical debt restructuring.”
- “Adding to the difficulties, vice-president Tareck El-Aissami, who will lead the process, has been sanctioned by the US for alleged drug-trafficking and money laundering.”
- “Furthermore, even if Venezuela seeks to get around the US sanctions by issuing restructured bonds in other currencies, authority for that would come from the Constituent Assembly — which Canada, the EU, the US, and 11 of Latin America’s biggest countries, including Brazil and Mexico, do not recognize.”
- “Renowned economists such as Ricardo Hausmann have long said Venezuela should restructure its debt, as they consider paying bondholders while Venezuelans go hungry to be immoral. But they recommend it as part of a broader economic restructuring backed by the International Monetary Fund.”
- “Indeed, the IMF has already crunched the numbers on the amount of help — upwards of $30bn annually — that could accompany such an approach. But international institutions will not extend such help to a government that has become a by-word in corruption and economic mismanagement — and is now near-bankrupt despite the world’s largest energy reserves.”
- “Government insiders stole $300bn of the $1tn windfall that Venezuela received during the oil price boom of the 2000s, according to disaffected former ministers. Meanwhile, a socialist government that claims to help the poor presides over a country where 82% of households live in poverty — twice as high as when it came to power in 1999.”
Perspective
- “A new online interactive tool helps Americans visualize just how economically divided the nation has become — and it’s not a pretty picture.”
- “The country’s deep income and wealth inequalities, which match levels not seen since before the Great Depression, have been widely reported.”
- “But the Distressed Communities Index, published by a Washington-based nonprofit called Economic Innovation Group (EIG), adds some startling new detail and localized specificity to the widening and persistent gap between the country’s rich and poor, the worst of any ‘advanced’ economy.”
- “The US economy has, on paper, been recovering from the Great Recession since the summer of 2009. Recently, growth has hovered around 2% a year, and the unemployment rate has fallen to just 4.4%.”
- “Still, many have yet to feel the gains of this rebound, which is among the longest in modern history but also the weakest.”
- “‘It is fair to wonder whether a recovery that excludes tens of millions of Americans and thousands of communities deserves to be called a recovery at all,’ EIG says in its Distressed Communities Index report.”
- “Here are some depressing findings from the EIG report, which finds that more than 52 million Americans are living in distressed ZIP codes:”
- “Job growth in distressed ZIP codes was negative on average from 2011 to 2015, trailing the average prosperous ZIP code by more than 30 percentage points.”
- “Distressed ZIP codes were the only group in which the number of both jobs and business establishments declined during the national recovery.”
- “Most distressed ZIP codes contain fewer jobs and places of business today than they did in 2000.”
- “Distressed ZIP codes contain 35% of the country’s ‘brownfield’ sites marked by ‘the presence or potential presence of a hazardous substance, pollutant, or contaminant.'”
- “58% of adults in distressed ZIP codes have no education beyond high school.”
- “Meanwhile, on the right side of the tracks:”
- “88% of prosperous ZIP codes experienced job growth from 2011 to 2015, and 85% saw rising numbers of business establishments.”
- “Prosperous ZIP codes have dominated the recovery, generating 52% of the country’s new jobs and 57% of its net new business establishments from 2011 to 2015.”
- “Adults with any level of postsecondary education are more likely to live in a prosperous ZIP code than any other type of community.”
- “45% of those with advanced degrees live in prosperous ZIP codes, more than in the bottom three quintiles of ZIP codes combined.”
- “For the poorest Americans, ‘stagnation and decline were the rule, not the exception.'”
NYT – Six Charts That Help Explain the Republican Tax Plan – Alicia Parlapiano 11/2
Pew – More Americans are turning to multiple social media sites for news – Elizabeth Grieco 11/2
- This is crazy.
WSJ – America’s Most Popular Type of Beer Is in Free Fall – Jennifer Maloney 11/1
- “The big three U.S. light-lager brands—Bud Light, Coors Light and Miller Lite—are all losing volume as consumers shift to craft and Mexican import beers as well as to wine and spirits.”
- “Retail store sales of Bud Light, Coors Light and Miller Lite are down 5.7%, 3.6% and 1.6%, respectively, this year through Oct. 21, according to Nielsen data compiled by Beer Marketer’s Insights. From 2010 through 2016, overall volumes in the light-lager category fell 14% to 65 million barrels.”
- “The silver lining, at least for Molson Coors, is that both Miller Lite and Coors Light are gaining share on market leader Bud Light.”
- “Meanwhile, Denver-based Molson Coors has a team looking at the potential impact legalized cannabis could have on its beer sales, as well as possible opportunities for investment, Mr. Hunter (Mark Hunter, CEO of Molson Coors) said. Constellation Brands said earlier this week that it is taking a 9.9% stake in Canadian cannabis company Canopy Growth Corp. and plans to develop nonalcoholic, marijuana-infused beverages.”
WSJ – Daily Shot: J.D. Power – American Awareness of the Equifax Data Breach 11/3
Worthy Insights / Opinion Pieces / Advice
FT – The challenge of Xi Jinping’s Leninist autocracy – Martin Wolf 10/31
- “Democracies have to recognize their failures to counter a China that sees itself as an ideological rival.”
FT – A way to poke Facebook off its uncontested perch – Tim Harford 11/2
- “The new tech titans need serious competition. For a social network, serious competition needs new rules to enable it.”
NYT – What Donald Trump Thinks It Takes to Be a Man – Jill Filipovic 11/2
WSJ – Who Will Rein In Facebook? Challengers Are Lining Up – Christopher Mims 10/29
Markets / Economy
WSJ – Daily Shot: Bitcoin 11/2
Real Estate
FT – Li Ka-shing to sell stake in HK skyscraper for record $5.2bn – Don Weinland 11/2
- While I already covered this from a Jacky Wong article in the WSJ, here are some more details.
- Li Ka-shing’s “CK Asset stands to make a gain of HK$14.5bn ($1.88bn) on the sale of The Center, according to a stock exchange filing.”
- And this was only on a portion of the building…
- “CK Asset owns 48 floors of office space in the 73-story building, as well as shopping space, car parks, basements and the entrance hall. The sale of those properties equates to HK$33,000 ($4,269) per square foot.”
- For the buyer, CHMT Peaceful Development Asia Property Limited (majority controlled by China Energy Reserve & Chemicals Group), “the investment yield on the building was about 2.5%, according to Mr Cheng” (Raymond Cheng, an analyst at CIMB Securities).
China
- “China’s state planning agency issued draft guidelines on outbound investment on Friday that require companies to seek approval for some foreign deals even if they are conducted through an offshore entity, an effort to assert greater control over even some foreign activities that don’t involve cross-border fund flows.”
- “In an explanatory notice accompanying the new rules issued for public comment, the National Development and Reform Commission said that ‘some foreign investment activities have drifted outside the boundaries of current supervision, and definite hidden risks exist.’”
- “Deals that don’t involve investment by mainland Chinese entities or cross-border fund movements are generally not subject to regulation by Chinese authorities. But the latest rules from NDRC require that a Chinese parent company get the agency’s approval for deals worth more than $300m in ‘sensitive’ sectors, even if the deal is conducted purely through offshore subsidiaries.”
Japan
WSJ – Daily Shot: Japan Household Confidence 11/2
WSJ – Daily Shot: Nikkei-225 Stock Average 11/2
Middle East
- “Global investor (and one of the world’s richest people) Prince Alwaleed among those detained as Prince Mohammed consolidates power.”
- The official aim is to weed out corruption.