Tag: Finance

April 28, 2017

Worthy Insights / Opinion Pieces / Advice

  • ZeroHedge – Canada’s Housing Bubble Explodes As Its Biggest Mortgage Lender Crashes Most In History – Tyler Durden 4/27
    • “Call it Canada’s ‘New Century’ moment.”
    • “We first introduced readers to the company we said was the ‘tip of the iceberg in Canada’s magnificent housing bubble‘ nearly two years ago, in July 2015 when we exposed a major problem that we predicted would haunt Home Capital Group, Canada’s largest non-bank mortgage lender: liar loans in particular, and a generally overzealous lending business model with little regard for fundamentals. In the interim period, many other voices – most prominently noted short-seller Marc Cohodes – would constantly remind traders and investors about the threat posed by HCG.”
    • “Today, all those warnings came true, when the stock of Home Capital Group cratered by over 60%, its biggest drop on record, after the company disclosed that it struck an emergency liquidity arrangement for a C$2 billion ($1.5 billion) credit line to counter evaporating deposits at terms that will leave the alternative mortgage lender unable to meet financial targets, and worse, may leave it insolvent in very short notice.”
    • “As part of this inevitable outcome, one which presages the company’s eventual disintegration and likely liquidation, Bloomberg reports that the non-binding rescue loan with an unnamed counterparty will be secured by a portfolio of mortgage loans originated by Home Trust, the Toronto-based firm said in a statement Wednesday. Home Capital shares dropped by 61% in Toronto to the lowest since 2003, dragging down other home lenders. Equitable Group Inc. fell 17%, Street Capital Group Inc. fell 13%, while First National Financial Corp. declined 7.6%. In short, the Canadian mortgage bubble has finally burst.”

Markets / Economy

Bloomberg Businessweek – Zombie Nation: In Japan, Zero Public Companies Went Bust in 2016 – Jason Clenfield 4/4

  • “Corporate Japan achieved a rare feat in the fiscal year that ended in March. Not one of its almost 4,000 publicly-traded firms filed for bankruptcy protection.”
  • But they’re not alone.
  • “In China, roughly 10% of the country’s publicly-traded companies are ‘among the walking dead,’ being kept alive by continuous support from government and banks, according to research by He Fan, an economist at Beijing’s Renmin University.”
  • “Across much of Europe, inefficient bankruptcy laws are partly to blame for rising numbers of undead companies. The problem is especially acute in Italy, where zombies represent 6% of all businesses, double the rate in 2007, according to the OECD report.”
  • “A 2016 academic paper co-authored by University of Maryland economist John Haltiwanger showed the rate of business start-ups has been falling steadily since the 1980s. The drop has been so steep since the financial crisis that in some recent years more U.S. companies have closed than opened-there’s destruction but not much creation.” Referencing Austrian economist Joseph Schumpeter’s concept of ‘creative destruction.’
  • “Paul Donovan, global chief economist at UBS Wealth Management in London, says that cheap credit has made business around the world less efficient, and that the real walking dead will remain hidden until borrowing costs begin to climb.”

Real Estate

Bloomberg – Robots May Help Build Your Next Home and Fill the Labor Gap – Prashant Gopal and Heather Perlberg 4/17

WSJ – The Hedge Fund Manager Who’s Shorting America’s Malls – Serena Ng and Esther Fung 4/26

WSJ – S&P’s Warning: Here Are 10 Public Retailers Most in Danger of Default – Khadeeja Safdar 4/26

  • “The number of bankruptcies so far this year has already come close to the total in 2016, with 14 retailers filing compared with 18 last year, according to S&P Global Market Intelligence.”
  • Further, “researchers at S&P Global Market Intelligence last week released a list of 10 publicly traded retailers they consider most at risk of default within the next 12 months.”
    • Sears Holdings Corp.
    • DGSE Companies Inc.
    • Appliance Recycling Center of America Inc.
    • The Bon-Ton Stores Inc.
    • Bebe Stores Inc.
    • Destination XL Group Inc.
    • Perfumania Holdings Inc.
    • Fenix Parts Inc.
    • Tailored Brands Inc.
    • Sears Hometown and Outlet Stores Inc.

Finance

WSJ – There’s Trouble in Capital One’s Wallet 4/26

  • “Credit losses aren’t at dangerous levels, though the rising charges are a bit worrisome given the strong jobs market. More concerning is the inability of Capital One to predict its own losses. Investors should be on guard for more nasty surprises from the entire credit-card industry.”

Bloomberg – Wells Fargo, JPMorgan Wary of Auto Loans, Pack Them in Bonds – Matt Scully 4/27

  • “Depending whose money they’re using, Wells Fargo & Co. and JPMorgan Chase & Co. either love subprime car loans or fear them.”
  • “Both banks have grown more reluctant to make new subprime loans using money from their own balance sheets. Wells Fargo tightened its underwriting standards and slashed the volume of all loans it made to car buyers in the first quarter by 29% after greater numbers of borrowers fell behind on payments. JPMorgan’s consumer and community banking head Gordon Smith earlier this year said the bank had cut its new lending for subprime auto loans ‘dramatically.'”

China

The Real Deal – Rumors circulate of Chinese government detaining Anbang chief Wu Xiaohui – EB Solomont and Cathaleen Chen 4/26

  • “According to the media reports, the investigation into Wu is connected to a $14.5 billion loan the Anbang chairman allegedly obtained illegally from Minsheng Bank. Wu used the illegal loan to invest in the stock market, the reports say. He may also have partly funded Anbang’s acquisitions with the loan, according to the reports.”
  • Oh by the way, “in January 2015, Reuters reported that Anbang had upped its stake in Mingsheng, the country’s largest private lender, to nearly 20%.”
  • Isn’t there a conflict of interest there?

Other Links

Bloomberg Businessweek – How a Gift of Coke Shares Helped Make These Colleges Richer – Janet Lorin 4/20

Bloomberg Businessweek – This Lawsuit Goes to 11 – Robert Kolker 4/20

April 17, 2017

Worthy Insights / Opinion Pieces / Advice

FT – China faces a tough fight to escape its debt trap – Martin Wolf 4/11

Real Estate

WSJ – Daily Shot: Households with Negative Equity 4/17

Finance

NYT – Vanguard Is Growing Faster Than Everybody Else Combined – Landon Thomas Jr. 4/14

  • “In the last three calendar years, investors sank $823 billion into Vanguard funds, the company says. The scale of that inflow becomes clear when it is compared with the rest of the mutual fund industry – more than 4,000 firms in total. All of them combined took in just a net $97 billion during that period, Morningstar data shows. Vanguard, in other words, scooped up about 8.5 times as much money as all of its competitors.”

April 9, 2017

Perspective

Economist – Free exchange: How Chavez and Maduro have impoverished Venezuela 4/6

“It is hard to convey the severity of Venezuela’s unfolding crisis. Its extent is astounding: the economy shrank by 10% last year, and will be 23% smaller than in 2013 by the end of this year, according to IMF forecasts. Inflation may exceed 1,600% this year. The human details are more poignant: over the past year around three-quarters of Venezuelans have lost weight, averaging 8.7kg (19.18lbs) per person, because of a scarcity of food. No war, foreign or civil, is to blame for this catastrophe. Venezuela did this to itself.”

“Fifty years ago, Venezuela was an example to the rest of Latin America, a relatively stable democracy and not much poorer than Britain.”

“Venezuela’s economy is built on oil – its leaders boast it has the world’s largest proven reserves – and it is tempting blame fickle crude prices for its woes. Oil accounts for more than 90% of Venezuelan exports. It helps to fund the government budget and provides the foreign exchange that the country needs to import consumer goods. Nearly everything of consequence in the economy, from toilet paper to trousers, is imported from abroad.”

“As oil prices soared in the 2000s, Venezuela found itself awash in cash. In 2014 the boom ended.” So the new president, Nicolas Maduro, could either let the bolivar float and depreciate in a meaningful way causing imports to jump in price – likely a very unpopular move – or fix the exchange rate, cross his fingers and try to keep market distortions from becoming overwhelming. 

“Economic dependence on oil is always fraught. Soaring oil prices place upward pressure on the exchange rate, leaving other, non-oil industries at a competitive disadvantage. That deepens an oil-exporting economy’s dependence on crude, worsening the pain when prices eventually fall.”

So what to do?

“When times are good, some use inflows of hard currency to build up foreign-exchange reserves, which can be drawn down later to cover foreign-currency obligations and import bills; Saudi Arabia holds reserves worth more than $500bn, for example. Others use oil profits to fill sovereign-wealth funds, which invest in a diversified portfolio in order to reduce the economy’s long-run exposure to petroleum. Norway’s fund, which is intended to help pay for state pensions, is worth nearly $900bn.”

“Chavez had the good fortune to take office at the tail end of a two-decade swoon in oil prices, and to preside over a price surge. The money that came to Chavez, he spent. From 2000 to 2013, spending as a share of GDP rose from 28% to 40%: a much bigger rise than in Latin America’s other large economies. Spending crowded out growth in foreign-exchange reserves. In 2000 Venezuela had enough reserves to cover more than seven months of imports; that dropped to under three months by 2013 (over the same period Russia’s reserves grew from five months of import cover to ten, and Saudi Arabia’s from four months to 37).”

“Why did Chavez not leave Venezuela better prepared for the inevitable crash?… During his rule, Chavez increased public spending on social programs and expanded subsidies for food and energy. Venezuelans felt the results, in higher incomes and improved standards of living. Chavez delivered, for a time.”

“Yet this narrative was false… In his careless economic management, he undercut the oil wealth that funded Venezuelan socialism. His assaults on private firms left the country short of the expertise and capital needed to develop its resources. In recent years it has produced less oil than China and a quarter of the output of Saudi Arabia. Venezuela ate its seed corn despite record harvests.”

“Venezuela was once the envy of Latin America, until a long stagnation in living standards brought a populist strongman to power. But popularity is hard to maintain. The greater the desperation of the populist, the greater the willingness to accept long-run risks in exchange for short-run pay-offs. Whether or not the populists survives to see it, the day of reckoning eventually arrives. And it is always the people that suffer most.”

Markets / Economy

Bloomberg Businessweek – Lies, Damn Lies, and Financial Statistics – Peter Coy 4/6

  • “Most of us have a vague sense that we’re being ripped off by investment firms that charge hefty fees while producing results that are no better than you’d get throwing darts at a page of stock listings. It’s troubling nonetheless to find out we’re correct. And it’s important to understand the mechanics of what has gone wrong.”
  • “Harvey’s term for torturing the data until it confesses is ‘p-hacking,’ a reference to the p-value, a measure of statistical significance.”

Economist – Eyes bigger than their wallets: Consumers and firms see a Trump boom. Most forecasters do not 4/6

  • “Economic indicators have rarely sent such mixed signals.”

NYT – Boom or Bust: Stark Partisan Divide on How Consumers View Economy – Nelson Schwartz 4/8

  • “We’ve never recorded this before, the partisan divide has never had as large an impact on consumers’ economic expectations.” – Richard Curtin, director of the University of Michigan’s monthly survey of consumer sentiment.

Real Estate

Bloomberg Businessweek – Toronto Bidding Wars So Fierce Homebuyers Skip Inspections – Kim Chipman 4/3

  • “Toronto’s housing boom is eclipsing those in San Francisco and Vancouver. Buyers are feeling the pressure.”

Economist – Aparkalypse now: The perilous politics of parking 4/6

  • “The average car moves just 5% of the time. To improve cities, focus on the other 95%.”
  • “One study of Washington, DC, found that the availability of free parking is associated with a 97% chance somebody will drive to work alone. Generous parking requirements create asphalt deserts, sapping cities of vigor and beauty. The money and land wasted on car parks make life costlier for everyone, even those who do not drive.”

Finance

Economist – Consumer loans: Payday lending is declining 4/8

  • “Roughly 2.5m American households, about one in 50, use payday loans each year, according to government statistics. The typical loan is $350, lasts two weeks, and costs $15 for each $100 borrowed.”
  • Yet due to government regulation “payday-loan volumes have fallen by 18% since 2014; revenues have dropped by 30%. During the first nine months of 2016, lenders shut more than 500 stores and total employment in the industry fell by 3,600, or 3.5%.”

Environment

WSJ – Rainy Days Are Here Again: California Governor Declares Drought Over – Jim Carlton 4/7

NYT – Rising Waters Threaten China’s Rising Cities – Michael Kimmelman 4/7

Health / Medicine

Bloomberg Businessweek – Just How Much Is a Medical Miracle Worth? – Caroline Chen 4/6

  • “Years of costly treatments could give way to pricier one-shot cures like Spark Therapeutics’ blindness drug. But insurers aren’t ready.”

China

Value Walk – China Debt Problem Is Massive At $35 Trillion, On Par With Greece – Mark Melin 4/8

  • “China is the key to the world economy, a Macquarie Research report points out.”
  • “China is like the Greek god of Atlas, Macquarie analysts Victor Shvets and Chetan Seth write, saying the Asian nation is ‘what stands between relative normality and [the] sky falling and crushing global economy.”
  • “China is responsible for 27% of global investment and nearly 66% of global credit creation, and the world is ‘addicted’ to Chinese money. Shvets and Seth think the ‘key’ to the reflation trade is found in China’s stimulus, which drove real estate and industrial development. This, in turn, drove commodity prices significantly higher.”
  • “‘Unlike Western economies that are ‘twisting themselves into pretzels’ trying to present various QE policies as something other than monetization while attempting to portray their fiscal policies as being responsible, China does not need to pretend,’ Shvets and Seth point out. In other words, they can be ‘credibly irresponsible,’ to use a Paul Krugman term, while maintaining a 300% debt to GDP level.”