Tag: Gig Economy

June 19, 2018

Worthy Insights / Opinion Pieces / Advice

FT – Watch the Fed’s balance sheet, not interest rates – Gillian Tett 6/7

  • “The US central bank’s unwinding has contributed to turmoil in emerging markets.”

FT – China is winning the global tech race – Michael Moritz 6/17

FT – Donald Trump’s trade tirade shows his mastery of the message – Rana Foroohar 6/17

Polygon – What if Star Wars never happened? – Kevin Lincoln 6/7

  • “Imagining a world where George Lucas’ space fantasy didn’t revolutionize Hollywood.”

Markets / Economy

WSJ – Daily Shot: indeed – Older workers are the gig economy 6/18


FT Energy Source: BP – World Fuel Sources by proportionate share – Ed Crooks 6/17

LA Times – Shale country is out of workers. That means $140,000 for a truck driver and 100% pay hikes – David Wethe 6/8


WSJ – The Finance Industry’s Incredible Ability to Keep the Money Rolling In – Paul J. Davies 6/15

  • “Banks, brokers and money managers have kept their revenue steady for 130 years.”

Cryptocurrency / ICOs

FT – Who really owns bitcoin now? – Hannah Murphy 6/7

  • “Initially in the crypto space, you had people who really understood the technology. Then there was a typical bandwagon investor situation and you know how it ends — and it did.” – Campbell Harvey, finance professor at Duke University and an investment strategy adviser for Man Group.
  • “But how many have gained — and lost — from the bitcoin bubble? Exclusive data from blockchain research company Chainalysis seen by the FT provides some tantalizing answers.”
  • “The Chainalysis data quantifies this distinct shift in the make-up of bitcoin owners from longer-term investors — those who held the asset for more than a year — to short-term investors who have traded more recently, by analyzing how regularly coins have changed hands.”
  • “Last November — before December’s pricing peak — the amount of bitcoin held for investment was roughly three times that held by traders.”
  • “However, by April 2018, the data show the amount held by investors — about 6m bitcoin — was much closer to the amount held by short-term speculators, with 5.1m bitcoin.”
  • Indeed, Chainalysis estimates that longer-term holders sold at least $30bn worth of bitcoin to new speculators over the December to April period, with half of this movement taking place in December alone.
  • “’This was an exceptional transfer of wealth,’ says Philip Gradwell, Chainalysis’ chief economist, who dubs the past six months as bitcoin’s ‘liquidity event’.”
  • “Mr Gradwell argues that this sudden injection of liquidity — the amount of bitcoin available for trading rose by close to 60% over that period — has been a ‘fundamental driver’ behind the recent price decline. At the same time, bitcoin trading volumes have now fallen in tandem with the prices, from close to $4bn daily in December to $1bn today.”
  • “So will the price of bitcoin ever surpass December’s peak? Part of the answer lies in who holds bitcoin now that the hype has died down.”
  • “Born in 2009 in the wake of the financial crisis, bitcoin is rooted in a libertarian quest for a means of exchange that is unshackled from the central banking system. Proponents — among them, computer experts and political activists — heralded the arrival of an alternative monetary system that could replace fiat currency.”
  • “But despite the recent crypto boom, there are few signs that this is happening. According to research published this month by Morgan Stanley, only four of the top 500 US e-commerce merchants accepted cryptocurrencies in the first quarter of 2018, compared with three at the beginning of 2017.”
  • “Chainalysis notes that the ‘vast majority’ of transactions it analyzed showed bitcoin being received from exchanges and rarely sent to merchant services to pay for goods or services.”
  • “Only a finite number of coin — 21m — can be created. Of this, about 4m are yet to be mined. Just as physical coins can be lost down the back of a sofa, so can bitcoins if users lose or forget the passwords needed to access their online wallets. The Chainalysis data separates out coins it deems to be lost or unused for years — which total 3.7m bitcoin, worth about $28bn.”
  • “’Speculation remains the primary use case for these digital assets; merchant or institutional adoption does not appear to be a primary driver of price,’ says Preston Byrne, an English structured finance lawyer and cryptocurrency observer.”
  • “Given this breakdown in bitcoin owners, most market watchers do not rule out another rapid price run-up. However, they say this would likely be the random movement of pure speculation or market manipulation rather than anything else.”
  • “’It’s very important to stress, this is not in any sense a rational market,’ says David Gerard, the author of Attack of the 50 Foot Blockchain.”
  • “’It’s very thinly traded, very badly structured . . . and it’s stupendously manipulated,’ he adds. ‘Anyone who goes in not realizing just how manipulated the crypto markets are will get skinned.’”
  • “The Chainalysis data also show that the bitcoin marketplace is skewed in terms of wealth distribution. A small cluster of investors — known colloquially as ‘whales’ — capture a hefty proportion of the market, which stands at odds with bitcoin’s mission to democratize finance. This brings its own risks.”
  • “Overall, some 1,600 bitcoin wallets — managed by both speculators and investors — contained at least 1,000 bitcoin each in April, according to Chainalysis, collectively holding nearly 5m bitcoin, or close to a third of the available total.”
  • “Of those, just under 100 wallets owned by longer-term investors contained between 10,000 and 100,000 bitcoin — so between $75m and $750m at today’s prices.”
  • “Nevertheless, some point out that the excitement and influx of fresh funds into the market has allowed its infrastructure to mature — albeit gradually — which could be a boon for those looking to trade bitcoin more safely in future.”
  • “Much of the future of bitcoin trading will depend on the approach that regulators take, experts say. There are stirrings across the world, though to date, little coherence. Asian financial centers such as Tokyo are now regulating crypto exchanges, while China has banned them outright. Meanwhile, the US Securities and Exchange Commission last month announced a criminal probe into potential bitcoin price manipulation.”
  • “Banks in particular have been reticent to engage with cryptocurrencies and the companies that handle them, partly due to the difficulty of conducting anti-money laundering checks on transactions.”
  • “’Bank compliance officers really, really hate cryptos . . . be prepared to demonstrate the provenance of every penny from every crypto,’ says Mr Gerard.”
  • “Any more widespread adoption of bitcoin would need regulators, central banks and tax regulators to allow the transfer of wealth movement from the current financial system into the new one, says Gavin Brown, senior lecturer in financial economics at Manchester Metropolitan University and director of cryptocurrency hedge fund Blockchain Capital.”

Environment / Science

Quartz – To hit climate goals, Bill Gates and his billionaire friends are betting on energy storage – Akshat Rathi 6/12


FT – Beijing leans on lenders to back debt-hit HNA’s bond sale – Lucy Hornby and Sherry Fei Ju 6/15

  • “Chinese banks have been urged by government officials to ‘support’ bonds issued by HNA as the troubled finance-to-aviation conglomerate tries to extricate itself from a massive debt burden racked up during an acquisition binge.”
  • “HNA plans to issue Rmb4bn ($620m) in domestic bonds, paying interest of 6.5-7.5%.”

Other Interesting Links

Bloomberg – It’s Billionaires at the Gate as Ultra-Rich Muscle In on Private Equity – Simone Foxman and Sonali Basak 6/11

WSJ – Daily Shot: Plastic Surgery Portal – Most Searched Plastic Surgery Procedures by State 6/18

September 15, 2017

If you were to read only one thing…

FT – To coin a craze: Silicon Valley’s cryptocurrency boom – Richard Waters 9/13

  • “So-called initial coin offerings, or ICOs, like this have turned into the year’s most striking financial craze. More than $1.8bn has been raised by software developers from the sale of new currencies with names such as Tezzies, Atoms and Basic Attention Tokens.”
  • “In unofficial online markets where these and other digital tokens are traded, the mania has hit even more bizarre levels. The value of Ripple — at five years, a cryptocurrency veteran — soared this year on a wider boom that was led by bitcoin. Ripple’s notional value, including coins held by the company for later sale, jumped from $500m at the start of the year to more than $35bn, before falling back to $19bn.”
  • “The boom in cryptocurrency prices has been fed by uncontrolled speculation, leading regulators to act. In recent days, Chinese authorities have banned ICOs and are now reported to be on the brink of shutting down all cryptocurrency exchanges. The Financial Conduct Authority, the UK regulator, warned anyone thinking of buying coins in an ICO that they should only do so if they are prepared to lose everything. Jamie Dimon, chief executive of JPMorgan, sent bitcoin prices down 10% on Tuesday when he called the currency a ‘fraud’ and threatened to sack anyone at his bank caught trading it.”
  • “But cryptocurrencies’ promoters argue that beyond the speculative mania, something profound is taking place. It has created a new way for start-ups developing platforms based on blockchain and other technologies to raise money, using online crowdfunding techniques.”
  • “Networks such as IPFS are based on a vision of decentralized online services where ordinary users interact directly with each other, rather than through internet companies that set themselves up as gatekeepers to the online world. According to the enthusiasts, many of the most popular internet applications could be remade in this way, leaving the control — and the profits — in the hands of the users.”
  • “But there is another view that draws on a different aspect of internet investment history. ‘There’s a tendency to turn the brain off and jump in. It’s like Pets.com [which shut down in 2000],’ says Mark Williams, a lecturer in financial risk management at Boston University. The speculation is being fed by a hype that is as insidious as the dotcom craze of the late 1990s, he says: ‘People are treating it like a lottery ticket.’”
  • “The value of the best-known digital currency, bitcoin, has risen eightfold in the past year. That has led to a hunt for the next untapped markets, lifting the notional value of all cryptocurrencies to more than $130bn. With nothing more needed to launch a coin sale than a ‘white paper’ — the document that coin promoters use to lay out their grand plans — and the promise of some computer code, the steady flow of ICOs in the past year has turned into a flood.”
  • “The boom, which began in early summer, is already exhibiting many of the characteristics of other speculative crazes. New coins have proliferated: more than 150 token sales have been conducted or announced this year. CoinMarketCap lists prices for about 1,100 coins, with more than 120 ICOs planned before the end of September.
  • “Celebrity endorsements have followed. Paris Hilton used Twitter to boost LydianCoin, a currency for a mooted advertising market that its backers hope will raise $100m. Boxer Floyd Mayweather got there before her, using the run-up to his late August bout with Conor McGregor to promote the prediction market Stox.com and content marketplace Hubii Network.”
  • “Underpinning new blockchain-based networks such as IPFS are protocols, or rules, embedded in software that govern how participants interact. At least in theory, many of the interactions that happen online, such as those on social networks, ecommerce sites and search engines, could take place between willing users on decentralized networks.”
  • “What supporters see as a profound financial innovation, however, others warn can be an easy route to creating funny money. When buyers have been so willing to purchase currencies issued on nothing more than the promise of a future market, it’s not surprising that so many are trying to mint new ones.”
  • “Selling coins has another advantage that the ICOs are less keen to highlight: it exploits a regulatory loophole. By selling a currency rather than shares they stay outside the scope of securities regulation, removing any constraints on how they market their offerings.”
  • “Regulators are working on closing this loophole. The US Securities and Exchange Commission said in July that it had determined that many coins were in fact a type of security, and would look at the underlying nature of each ICO to determine whether they should be regulated as securities.”
  • “For their creators, ICOs have another obvious attraction. They have made it possible to raise far larger amounts than start-ups can usually tap, at least as long as enough investors can be persuaded to suspend their disbelief.”
  • Caveat emptor.

Worthy Insights / Opinion Pieces / Advice

FT – China exploits the vulnerability of open democracy – Jamil Anderlini 9/13

  • “Soft targets like New Zealand are testing grounds for Chinese global espionage.”

WSJ – The Life of a Contractor Worker Is a Grind of Snubs, Anxiety and Stagnation – Lauren Weber 9/13

Bloomberg Businessweek – Kim’s Nukes Aren’t a Bargaining Chip. They’re an Insurance Policy – Michael Shuman 9/7

Markets / Economy

WSJ – Daily Shot: Moody’s – US State Pension Burdens 9-14

Environment / Science

NYT – Cassini’s Mission to Saturn in 100 Images – Jonathan Corum 9/14

WEF – Business Insider – This map reveals that temperatures have risen in nearly every US state over the last century – Leanna Garfield 9/13


Bloomberg Businessweek – This High-Tech Vertical Farm Promises Whole Foods Quality at Walmart Prices – Selina Wang 9/6

July 14, 2017


WSJ – Daily Shot: Statista – Canada’s Positive Global Influence 7/13

FT – IPOs: forlorn unicors – Lex 7/13

  • “Perhaps the recent IPOs will rebound, as Facebook did after its initial dip. Or maybe a stronger company, such as Airbnb, will manage to make a success of going public. The evidence so far is that private valuations are still inflated and should fall.”

Worthy Insights / Opinion Pieces / Advice

NYT – What We Lose When the World Moves On From Email – Farhad Manjoo 7/12

WSJ – Gig Workers Pose Danger to Consumer Lending Boom – Paul Davies 7/12

  • “For banks and regulators, as flexible working grows, they will need to find other indicators of looming payment problems. Difficulties may already be happening. Delinquency rates on some forms of subprime credit and auto loans are rising according to New York Fed data, at a time when unemployment rates are still trending down.”
  • “That is very unusual, but it may be a sign of things to come.”


WSJ – Daily Shot: German 10yr Government Bond Yield 7/13

  • “While Treasury prices have stabilized, the selloff in Bunds persists. Here is the 10yr German bond yield approaching 60 bps.”

July 11, 2017


Fortune – This Is the Average Pay at Lyft, Uber, Airbnb and More – Erika Fry & Nicolas Rapp 6/27

Worthy Insights / Opinion Pieces / Advice

WSJ – How Fixing Italy’s Banks Is Helping Europe Heal – Paul Davies 7/10

NYT – How the Growth of E-Commerce Is Shifting Retail Jobs – Robert Gebeloff and Karl Russell 7/6

Markets / Economy

WSJ – Tesla Sales Fall to Zero in Hong Kong After Tax Break Is Slashed – Tim Higgins and Charles Rollet 7/9

  • “Tesla Inc.’s sales in Hong Kong came to a standstill after authorities slashed a tax break for electric vehicles on April 1, demonstrating how sensitive the company’s performance can be to government incentive programs.”
  • “Not a single newly purchased Tesla model was registered in Hong Kong in April, according to official data from the city’s Transportation Department analyzed by The Wall Street Journal.”
  • “In March, shortly after the tax change was announced and ahead of the April 1 deadline, 2,939 Tesla vehicles were registered there—almost twice as many as in the last six months of 2016.”
  • “As a result of the new policy, the cost of a basic Tesla Model S four-door car in Hong Kong​ has effectively risen to around $130,000 from less than $75,000.”
  • “Hong Kong’s decision is effective through March 2018, and the government has said it would review the policy before then.”


NYT – China’s Wanda Signals Retreat in Debt-Fueled Acquisition Binge – Sui-Lee Wee 7/10

  • “A year ago, the Chinese billionaire Wang Jianlin declared the dominance of his vast entertainment empire, Dalian Wanda Group, boasting that his theme parks were a ‘pack of wolves’ that would defeat the lone ‘tiger’ of Disney’s Shanghai resort.”
  • “Now, Mr. Wang is retreating, in a sign that Wanda could be reaching the limits of its debt-fueled expansion.”
  • “Wanda said on Monday that it would sell the theme parks as part of a $9.3 billion deal that includes 76 hotels and a major chunk of 13 tourism projects. The cash from the deal, with the property developer Sunac China, would be used to pay down debt.”
  • “The deal announced on Monday would help Wanda pay off some of its debt.”
  • “Sunac would pay $4.4 billion for a 91% stake in each of the 13 tourism projects, all in China, and would take over the loans for the projects. Wanda also agreed to sell 76 hotels for $4.9 billion.”
  • “In the deal with Sunac, Wanda would continue to operate all of the projects under the company’s brand name, and it would own fewer underperforming hotels.”
  • About the assets…
  • “…Only four of the 13 theme parks being sold are up and running; most are in the planning stages. Wanda opened its first theme park, an indoor one, in the Chinese city of Wuhan. But it closed after 19 months for ‘upgrades and renovations,’ and it has yet to reopen.”
  • So why would Sunac buy underperforming hotels and theme parks – at a premium? You’ll note that Dalian’s hotel stock (Wanda Hotel) price was up 155% on the news…
  • “I don’t understand this move by Sunac. Where are they getting this endless flow of money?” – Deng Zhihao, a real estate economist with Fineland Assets Management Company based in Guangzhou, China.
  • “’Last year, they were the property developer that bought the most number of properties,’ he added. ‘And this year, they’ve spent a lot of money to save LeEco.’”
  • LeEco is an embattled company with a charismatic founder with grand ambitions but appears to be insolvent (which would result in a $2.2 billion loss to Sunac).

April 19, 2017

Worthy Insights / Opinion Pieces / Advice

Naked capitalism – It’s Time to Regulate the Gig Economy – Yves Smith 4/18

  • “Depicting work in the platform economy as a mere ‘sharing of favors’ conveys an image of the gig economy as a sort of parallel dimension, where chores are amateurishly carried out as a form of leisure, with no relation to ‘work’. The reality, however, is different. For most workers, platform-based work is an essential source of income. The ILO recently surveyed workers on two important micro-task platforms: Amazon Mechanical Turk and Crowdflower. Forty percent of respondents answered that crowdwork constituted their principle source of income. Workers averaged 30 hours a week on the platform.”

Markets / Economy

FT – IMF says debt binge leaves US corporate assets exposed – Shawn Donnan and Gemma Tetlow 4/19

  • “A debt binge has left a quarter of US corporate assets vulnerable to a sudden increase in interest rates with the ability of companies to cover interest payments at its weakest since the 2008 financial crisis by one measure, the International Monetary Fund has warned.”


FT – The fearless market ignores perils ahead – Robin Wigglesworth 4/18

  • “The big mystery of the year has been the disconnect between the chaos in Washington and the calmness in markets.” – Adam Sender, head of Sender Company and Partners, a hedge fund.
  • “In part, Vix (Chicago Board Options Exchange Volatility Index) has been becalmed because the US stock market has been remarkably placid. The S&P 500 recently enjoyed its longest run of avoiding big drops of more than 1% in over two decades. But the evaporation of volatility also reflects profound structural changes that have taken place since the financial crisis, such as the primacy of central banks and the big shift into exchange traded funds.”


FT – China’s capital controls dent inbound investment – Don Weinland 4/18

  • “China’s restraints on capital outflows have started to discourage inbound investment into the country, the opposite of the intended effect of the measures.”
  • “Last year, Beijing began cracking down on outbound investments and stopping companies from remitting capital offshore in an attempt to preserve its rapidly deteriorating foreign reserves, which dipped below $3tn in January for the first time in five years.”

FT – Wang Jianlin confirms China blocked Wanda’s US TV deal – Lionel Barber and Charles Clover 4/18

  • China’s richest person, Wang Jianlin, confirmed that new regulations scuttled his planned $1bn acquisition of Dick Clark Productions.

NYT – As Zeal for China Dims, Global Companies Complain More Boldly – Sui-Lee Wee 4/19

Other Links

FT – Fifa struggles to win backers for Russia World Cup – Murad Ahmed and Max Seddon 4/18

  • “World football’s governing body lost several major sponsor, including Sony and Emirates, when their deals ended at the end of the last tournament in 2014. For the 2018 tournament in Russia, Fifa has 10 companies signed up as sponsors, but before the last tournament in Brazil, the organization had 20 corporate partners on board.”

Reuters – U.S. soda sales drops for 12th straight year – Sruthi Ramakrishnan 4/19

  • “Sales of soda drinks decreased about 1.2% in the United States in 2016, falling for the 12th  year in a row, a report by trade publication Beverage Digest showed, as demand was hit by consumers choosing healthier options and a slew of sugar taxes aimed at stemming obesity and diabetes.”
  • “However, total sales dollars increased 2% to $80.6 billion as soft drinks makers aggressively pushed smaller packs at higher prices per ounce, while lowering emphasis on large discount packs, the Beverage Digest said.”

April 10, 2017

If you were to read only one thing…

The US college debt bubble is becoming dangerous. Rana Foroohar. Financial Times. 9 Apr. 2017.

“Rapid run-ups in debt are the single biggest predictor of market trouble. So it is worth noting that over the past 10 years the amount of student loan debt in the US has grown by 170%, to a whopping $1.4tn — more than car loans, or credit card debt. Indeed, as an expert at the Consumer Financial Protection Bureau recently pointed out to me, since 2008 we have basically swapped a housing debt bubble for a student loan bubble. No wonder NY Federal Reserve president Bill Dudley fretted last week that high levels of student debt and default are a ‘headwind to economic activity.'”

“In America, 44m people have student debt. Eight million of those borrowers are in default. That’s a default rate which is still higher than pre-crisis levels — unlike the default rate for mortgages, credit cards or even car loans.”

“Rising college education costs will not help shrink those numbers. While the headline consumer price index is 2.7%, between 2016 and 2017 published tuition and fee prices rose by 9% at four-year state institutions, and 13% at posher private colleges.”

“The average debt load individual graduates carry is up 70% over the past decade, to about $34,000.”

“Growing student debt has been linked to everything from decreased rates of first time home ownership, to higher rental prices, to lower purchases of white goods and all the things that people buy to fill homes. Indeed, given their debt loads, I wonder how much of the ‘rent not buy’ spending habits of Millennials are a matter of choice.”

“But there are even more worrisome links between high student debt loads and health issues like depression, and marital failures. The whole thing is compounded by the fact that a large chunk of those holding massive debt do not end up with degrees, having had to drop out from the stress of trying to study, work, and pay back massive loans at the same time. That means they will never even get the income boost that a college degree still provides — creating a snowball cycle of downward mobility in the country’s most vulnerable populations.”

“How did we get here?”

Essentially, “beleaguered governments are pushing more and more of the responsibility for the things that make a person middle class — education, healthcare and pension — on to individuals.”

“What are the fixes? For starters, we should look closely at the for-profit sector, where default rates are more than double those at average private colleges. These institutions receive federal subsidies but typically spend a minuscule part of their budgets on instruction; in the US, nearly 50% goes on marketing to new students. It looks all too much like an educational Ponzi scheme.”

“Transparency is also key — the student loan market as a whole is hopelessly opaque. In one recent US study, only a quarter of first year college students could predict their own debt load to within 10% of the correct amount.  Truth in lending documents would help, as would loan counselling paid for by colleges. Sadly, the agency that is leading the fight on both — the CFPB — is under attack from Trump himself.”

“But the administration will not be able to hide from the student debt bubble. In an eerie echo of the housing crisis, debt is already flowing out of the private sector, and into the public. Before 2007, most student loans were underwritten by banks or other private sector financial institutions. Today, 90% of new loans originate with the Department of Education. Socialization of risk continues to be the way America deals with its debt bubbles. “

“Would that we considered making college free, as Bernie Sanders suggested. Even Mr. Dudley called this ‘a reasonable conversation.’ That way we could socialize the benefits of education too.”

More perspective: NYT – Loans ‘Designed to Fail’: States Say Navient Preyed on Students – Stacy Cowley and Jessica Silver-Greenberg 4/9

Worthy Insights / Opinion Pieces / Advice

NYT – The Gig Economy’s False Promise – The Editorial Board 4/10

  • “In reality, there is no utopia at companies like Uber, Lyft, Instacart and Handy, whose workers are often manipulated into working long hours for low wages while continually chasing the next ride or task. These companies have discovered they can harness advances in software and behavioral sciences to old-fashioned worker exploitation, according to a growing body of evidence, because employees lack the basic protections of American Law.”

WSJ – Should the Social Security Trust Fund Be Allowed to Invest in Stocks? – Alicia Munnell (Boston College) and Michael Tanner (Cato Institute) 4/9

  • In the argument for and against, “what the two sides generally do agree on is that the Social Security trust fund needs shoring up: According to a trustees’ report from last year, the fund is on track to run dry around the mid-2030s, at which point the program would be able to pay out only about 75% of promised benefits.”

Atlantic – What in the World Is Causing the Retail Meltdown of 2017? – Derek Thompson 4/10

  • “Finally, a brief prediction. One of the mistakes people make when thinking about the future is to think that they are watching the final act of the play. Mobile shopping might be the most transformative force in retail—today. But self-driving cars could change retail as much as smartphones.”
  • “Once autonomous vehicles are cheap, safe, and plentiful, retail and logistics companies could buy up millions, seeing that cars can be stores and streets are the ultimate real estate. In fact, self-driving cars could make shopping space nearly obsolete in some areas. CVS could have hundreds of self-driving minivans stocked with merchandise roving the suburbs all day and night, ready to be summoned to somebody’s home by smartphone. A new luxury-watch brand in 2025 might not spring for an Upper East Side storefront, but maybe its autonomous showroom vehicle could circle the neighborhood, waiting to be summoned to the doorstep of a tony apartment building. Autonomous retail will create new conveniences and traffic headaches, require new regulations, and inspire new business strategies that could take even more businesses out of commercial real estate. The future of retail could be even weirder yet.”

Markets / Economy

FT – Gundlach: appetite for reflation trade will wane further – Eric Platt 4/10

  • “Jeff Gundlach (chief executive of DoubleLine Capital – which manages $105bn on behalf of its clients), the influential bond investor, has warned that appetite for the so-called relation trade will evaporate further in coming months as expectations for an acceleration in US economic growth and inflation are tempered.”
  • Not all that surprising really, and if you’re in the market for a mortgage there should be some relief in pricing (there already has been so far this year).  Then the article goes on to say: “the yield on the 10-year Treasury bond will not be back up to 3% this year, a level he had previously said would spell the end of the bull market. DoubleLine’s founder told investors he believed it would head higher over a longer period and could reach 6% in four or five years.”
  • Come again… please elaborate. No really, the article doesn’t elaborate or link to any reports by Gundlach. Talk about burying the lead.
  • Consider the implications on home pricing if 10-year rates are at 6%. They’re currently at around 4.10% on a 30-year fixed, so about 260bp (basis points) or 2.6% points higher than 10-year rates which are around 2.4%. To translate, if you have a $400,000 mortgage (arbitrary number) you’d be looking at a monthly payment of $1,932.79 at today’s rate.  That same mortgage amount if 30-year fixed rate mortgages hold a similar spread when the 10-year treasury is at 6% would be $3,104.05. A 60.60% increase in the monthly mortgage amount or $14,055.12 additional after tax dollars each year. Or if you could only afford the $1,932.79 monthly payment, then you would only be able to take on a $249,067 mortgage. Presumably that would hurt your purchasing power.
  • Alternatively, consider commercial real estate. If the 10-year moved to 6% in four or five years, what should you be putting in your models for an exit cap rate? Currently the commercial property loans average about 150bp over the 10-year for the primary categories-office, retail, multifamily, and industrial-according to interest rate surveys from Trepp.  Hence, you can buy a going-in cap rate of 5% and have a little spread of 1.10% (110bp) over the cost of your debt.  Fortunately for the last 30 or so years you could model a lower exit cap rate – really accounting for a large part of many investors returns.  Consider if you had to add 350bp to your exit cap rate…
  • Again to translate. Today the idea of purchasing a property that generates $100,000 in triple net (NNN) income-net of all expenses, property taxes, etc.-at a 5% cap rate would imply that you’d be willing to pay $2,000,000 for the property. Okay. What happens if cap rates adjust to maintain a similar spread over the 10-year treasury if it moves to 6%?  Then for the same income you’d want a 8.6% cap or would be willing to pay $1,162,791.  A 41.86% drop in value.
  • Well, the counter argument would be that the economy would have to be cranking along pretty well for the 10-year Treasury rate to move to 6%.  Then some of the effects of the above would be neutralized by increasing incomes, increases in spending, and so on.  However, note that rent from tenants are contracted and increase in defined amounts – so in this case, they’d probably get the better of the landlords – unless there are generous percentage rent terms…
  • Don’t expect this to be a smooth transition, and real estate is not the only industry that relies on a lot of debt capital – think energy…



Bloomberg – There’s a Big Reason Volatility Might Be Coming Back – Alex Harris 4/8

WSJ – Nothing to Fear but the Lack of Fear in Markets – Steven Russolillo 4/9


FT – Energy shifts to a buyers’ market – Nick Butler 4/9

  • “Markets have a tendency to swing from side to side. There are times when suppliers can name their prices and times when the advantage is against them. We are the cusp of a major change after half a century of producer control. For the companies involved and their investors this is a hard moment. Some will see it as a cyclical move that will be reversed as demand increases. That is a very risky investment strategy. The better approach for both companies and investors is to assume that we are experiencing a structural shift and that to thrive those involved in the sector must adapt their business model and their investment strategy to a new reality.”


Rational Radical – Housing bubble is now official, commence arse-covering (panic)! – Matt Ellis 4/7


FT – China markets regulator: ‘iron cockerels’ to be dealt with harshly – Hudson Lockett and Jennifer Hughes 4/9


FT – HNA’s buying spree surpasses $40bn with CWT deal – Don Weinland, Arash Massoudi, and James Fontanella-Khan 4/9

  • “China’s HNA Group, the small domestic airline operator turned ultra-acquisitive conglomerate, has now struck more than $40bn of deals in little more than two years after announcing plans to buy Singapore logistics provider CWT.”
  • “However, the activity has confounded veteran bankers and China watchers alike, who have raised concerns over its rapid expansion and also questioned its sources of capital for the deals, many of which are done through affiliates. Moreover, the pace of HNA’s foreign dealmaking has quickened in spite of a Chinese clampdown on the flow of capital out of the country since November.”

November 4 – November 10, 2016

Oil peaking in five years? Gig economy creating or cannibalizing jobs?


Special Reports / Opinion Pieces


    • “Yes, the company experienced three straight quarters of declining iPhone sales before registering an uptick in its most recently completed quarter. And its overall quarterly profit slid for the first time in 15 years. Even so, Apple accounted for a staggering 103.6% of the smartphone industry’s operating profits during the third quarter, according to a BMO Capital Markets analyst, Investor Business Daily reported.”
    • “Making it even more remarkable is the fact that Apple has actually been losing market share. In the third quarter of 2016, Android captured a record 88% of the global market, according to Strategy Analytics. Meanwhile, Apple’s iOS share slipped to 12.1% in the same period, from 13.6% the year prior.”
  • Kiran Stacey of the Financial Times covered how smog levels in Delhi are driving out some of its middle-class residents.
    • Pollution is bad in India’s political hub. Really bad with particulate levels last week reaching more than 30 times the World Health Organization limit recommended for safe habitation.
    • “The economic consequences of Delhi’s pollution are already being seen in the property market – often a leading indicator of what will happen to the rest of the economy.”
    • “In the past three years, property prices in Delhi have fallen 21.7% according to the MagicBricks property index. And estate agents say the decline is accelerating.”
    • “‘Rents have really fallen in the last year – on average by more than 30%,’ said Kajal Makhijani of Mak Realtors, a broker who works in particular with the expatriate community. ‘Expats are getting really worried about the pollution and deciding not to come, or to work outside the city. Recently we have seen those concerns start to be shared by Indians as well.'”
  • Illustrated in the Daily Shot in the Wall Street Journal on November 8…
    • “Consumer debt (excluding mortgages) rose more than expected – shown as a percentage of GDP below.”
    • daily-shot_fred-us-consumer-credit_11-8-16
    • “A good portion of this increase was from student loans. The chart below shows student debt directly owned by the federal government, which has now exceeded $1 trillion. Note that the total student debt outstanding (including debt that is guaranteed by the government) is about $1.4 trillion.”
    • daily-shot_fred-us-student-loans_11-8-16


FT – In charts: America’s growing state of disunion – Shawn Donnan, Sam Fleming, and Lauren Leatherby 11/7


WSJ – Daily Shot: November 8, 2016



*Note: bold emphasis is mine, italic sections are from the articles.

Will oil peak within 5 years? Nick Butler. Financial Times. 3 Nov. 2016.

“On November 2 Simon Henry, the chief financial officer of Royal Dutch Shell and one of the most respected figures in the industry, told analysts on a conference call for the Shell results presentation that he believed ‘oil demand will peak before supply and that peak may be between five and 15 years hence.'”


“Oil demand in the developed OECD world has already peaked and is 9% below the level reached in 2005. In Europe, oil demand is down 17% over the same period.”

“All the indications are that in the developed world demand has further to fall. Oil use is now heavily concentrated in the transport sector. Electric vehicles have only a fractional share of the market but the numbers are growing month by month. Technology is improving, reducing costs and expanding sales. Tesla gets most of the publicity but those wanting to understand the impact of EVs on the oil market should look at China where 188,000 new electric and hybrid vehicles were sold in 2015. This year that number is expected to more than double to around 450,000.”

“As EVs proliferate, their costs will fall until they are the natural purchase everywhere.”

The implications for the oil companies are plateaued-to-falling demand and corresponding pressure on oil pricing.

With the biggest challenge facing the “producing countries, especially those that have failed to diversify their economies, such as Russia, Nigeria, Algeria, Venezuela and, of course, Saudi Arabia. Some have such a low production cost base that they should be able to keep their market share. But with the prospect of a decline in oil use in mind many will want to maximize production quickly to extract as much revenue as possible as soon as they can. In a declining market the expectation will be that prices will stay low or fall further, removing any remaining incentive to keep oil in the ground.”

“The 20th century was the age of oil. The 21st will not be and the adjustment process for those involved could be very disruptive – destroying rentier economies built on oil revenues, changing the pattern of trade and adding another challenge to unstable and dangerous parts of the world.”

Is the Gig Economy Cannibalizing or Creating Jobs? Here’s Some Early Evidence. Mark Muro. Wall Street Journal. 3 Nov. 2016.

“Does the so-called gig economy of app-based freelancing for platforms like Uber or TaskRabbit complement or ‘cannibalize’ more conventional payroll work? Given the sketchiness of the data available, it’s been hard to tell.”


“All in all… the online freelance marketplaces may well gain workers at the expense of competing payroll businesses in some industries, particularly where incumbents are struggling in weaker markets or fail to respond with better service.”

“All of this is important because of the rise of online temping, freelancing and independent contracting has huge implications for the circumstances of workers and families in cities.”

“To begin with, the scale of the trend is enormous. In this regard, the spread of new, gig-based business models for linking workers to work isn’t just a limited scale, vanguard development. Instead, the changes affecting a few hundred thousand workers in the rides and rooms industries are a tiny part of a pervasive, economywide move toward nontraditional freelance, contract or temporary work arrangements in dozens of industries. And the number of workers involved is huge. Overall, there may be as many as 68 million ‘independent’ workers in the U.S., according to a new estimate by the McKinsey Global Institute. Within a decade, nearly half of all employed Americans may be employed this way. So the size of the trend alone underscores the need to pay attention.”

“Beyond that, the shift to alternative work arrangements matters for policy makers because it represents a fundamental reorientation of the social contract within which millions of Americans work. Most notably, the rise of online temping, freelancing and independent contracting means that millions of workers increasingly lack access to the once-ubiquitous labor standards that defined the ‘good jobs’ economy that came out of the New Deal era. Gig workers, for example, retain limited access to income security protections, such as unemployment insurance, workers’ compensation and disability payments. Minimum-wage and antidiscrimination laws may not apply to such contractors, nor do they often receive retirement benefits such as Social Security. And for that matter access to credit, training and credentialing becomes even more tenuous than elsewhere in the economy.”

“In short, the expansion of the gig economy-left to itself-is likely going to contribute to larger trends that are reducing the share of American workers that can achieve basic economic security through their work.”

Other Interesting Articles

Bloomberg Businessweek

The Economist

Bloomberg – Banks Passed Up Uber Share Sale on Lack of Data 11/7

FT – The Cohen model of making billions loses its appeal 11/4

FT – China replaces finance minister Lou Jiwei 11/6

FT – Japanese investors grapple with wedding versus funeral bet 11/7

FT – Vices and virtues of Uber’s insolence 11/7

FT – What does China’s latest intervention mean for Hong Kong? 11/7

FT – The Hillary Clinton hate campaign has twisted America 11/7

FT – Mozambicans feel the pinch as ‘tuna bond’ debt crisis deepens 11/7

FT – Oil demand might peak in just over a decade, says Opec 11/8

FT – China card curbs stem cash flow to Hong Kong insurance plans 11/8

FT – Lessons from the Mozambique meltdown 11/8

FT – Sports rights: The fight to keep the fans on side 11/8

FT – Infineon breaks Rubik’s Cube world record 11/9

NYT – Young Adolescents as Likely to Die From Suicide as From Traffic Accidents 11/3

NYT – Turkey’s Post-Coup Crackdown Targets Kurdish Politicians 11/4

NYT – ‘We Almost Have Riots’: Tensions Flare in Silicon Valley Over Growth 11/4

WSJ – China Faces Looming Bulge in Currency Pressure 11/4

WSJ – Office Pileup Gets Worse in Houston 11/8

WSJ – Warning Light Flashes on Auto Loans 11/8

WSJ – With Financing Scarce, Chinese Developers Get Too Clever by Half 11/10

October 7 – October 13, 2016

There are the pension obligations kept on the books based on industry guidelines and then there are the books that track what they really think. America’s tech boom has been great for the consumer, but not so much for the employees that have been displaced.



    • “Sovereign wealth funds have pulled almost $90bn from asset managers over the past two years, as state-backed investment vehicles grapple with low commodity prices and disappointed returns.”
    • “The Norwegian government has tapped the Scandinavian country’s $890bn oil fund, the largest sovereign wealth fund in the world, for almost $6bn this year.”
    • “Moody’s, the rating agency, has predicted that sovereign outflows would be at least 25% higher in 2016 than in 2015, due to the low oil price.”
    • Other reasons stated for the pullback include: poor performance from fund groups, bringing investment management in-house, diversification, and having cash-on-hand for opportunistic investments.
    • “Between 20 and 30% of people in the US and Europe are working independently in the so-called “gig economy” according to a new study that counts moonlighters as well as full-timers.”
    • While many are satisfied with their gig arrangement, “about 30% are doing it as a last resort.”
    • Further, ‘gig’ work is not only for the young. “The survey found that in the UK, 39% of adults aged 55 and over were working independently versus 31% of 25 to 54 year olds. The same pattern was found in Sweden and Germany.”
    • “Scaling up the results of our survey suggests that 50 million Americans and Europeans are independent out of necessity, and more than 20 million of them rely on independent work as their primary source of income.”
    • In an effort to grow its inventory, Airbnb is reaching out to apartment landlords to rent out some of their vacant inventory. So far, most landlords have been declining.
    • Why?  1) “Under Airbnb’s new plan, called the Friendly Building Program, if landlords allow tenants to lease units on Airbnb, they have an opportunity to take a cut of the nightly revenue at a suggested rate of 5% to 15%.” I.E. for a “one-night, $200 stay that means the landlord would make $30 or less, an amount that many landlords say doesn’t justify the hassle.” And 2) as illustrated by “Cortland Partners, which owns 36,000 apartment units primarily in the Southeast, in a recent survey found that nearly 40% of residents would be significantly less likely to renew their leases if the company allowed tenants to rent out units on Airbnb.” Basically, as Margette Hepfner, Senior VP of Lincoln Property Co (manages or owns 175,000 units), so aptly puts it “There’s just inherent risk in allowing unknown guest to come onto your property.”
  • Josh Zumbrun of the Wall Street Journal discussed the findings from the Journal’s recent economist survey. Essentially, economists believe a recession is likely within the next four years.
    • “Economists in The Wall Street Journal’s latest monthly survey of economists put the odds of the next downturn happening within the next four years at nearly 60%.”
    • Why… because “the American economy has never grown for more than a decade without a recession.”
    • “The current expansion began in June 2009, and has now continued for 88 months, making it the fourth-longest period of growth in records stretching to 1854.”
    • However, “to be clear, the length of an expansion bears little relation to its strength. The U.S. economy has grown at a 2.1% annual pace since 2009. That is the slowest growth of any expansion after World War II.”
    • “But over the next four years, few think a recession is absolutely guaranteed. A quarter of economists place the odds below 50%.”
    • “It is precisely because the economy has grown slowly that some think the recovery could last a long time. ‘Slow and steady leaves plenty of fuel to keep going,’ said Russell Price, senior economist for Ameriprise Financial.”
  • Henny Sender of the Financial Times covered the continuing bull run in the Chinese property sector.
    • “Property as an asset class has become important in China – maybe too important. It is critical to the financial system (since 70% of all bank loans are backed by real estate collateral), as a source of economic growth and as a source of savings and wealth for many households.”
    • As Nicole Wong, the regional head of property research for CLSA in Hong Kong puts it “property is an alternative currency in China.”
    • “But no asset class is as sensitive to liquidity’s soothing effect as property and there is a lot of liquidity in China. And as it always does, liquidity is buoying the property market, well beyond the first-tier cities where so many couples go through staged divorces just so that they can each buy a starter home on more attractive terms.”
    • “‘Liquidity is coming from the sky,’ says one Hong Kong-based hedge fund manager, noting that 40% of all global money supply in recent years has come from China. So even as central banks in Japan and the US debate helicopter money for local infrastructure and other ambitious development projects, China comes closest to realizing that concept as it ramps up its money printing presses. China’s total social financing for August was again at highs set earlier this year, while for the first half it amounted to $1.5tn, he adds.”

Special Reports / Opinion Pieces

  • FT – Investors ignore messages from ‘global AGM’ at their peril – Mohamed El-Erain 10/9
    • “In sum, the AGM (Annual General Meeting) reinforces three concerns about the global economy. 1) Its prospects are becoming more fragile in terms of growth, financial stability, indebtedness and, therefore, inclusive prosperity. 2) Bizarre political dynamics add fuel to the fire, directly and by holding back timely policy adjustments. 3) The potential damage now extends beyond forgone opportunities to also undermining future potential, including open trading systems and politically-autonomous central banks.”


FT – Gap widens between China’s ‘old’ and ‘new’ economies – James Kynge 10/6

FT_New China economy companies outperforming_10-6-16

Bloomberg – Grocery Prices Are Plunging – Craig Giammona 9/26

Bloomberg_Falling Food Prices_9-26-16

FT – China anti-corruption campaign backfires – Hudson Lockett 10/9

FT_China's top concerns_10-9-16

WSJ – Worries Grow That China Faces a Perilous Property Bubble – Dominique Fong and Lingling Wei 10/7

WSJ_Chinese lending growth_10-7-16

WSJ – Mainland China’s Property Bubble Leaks Into Hong Kong – Jacky Wong 10/12


Visual Capitalist – These 3 Maps Help to Visualize America’s $18 Trillion Economy – Jeff Desjardins 10/12



*Note: bold emphasis is mine, italic sections are from the articles.

A Sour Surprise for Public Pensions: Two Sets of Books. Mary Williams Walsh. New York Times. 17 Sep. 2016.

Turns out, the California Public Employees Retirement System (CalPERS) – and many similar pension funds for that matter – keep two sets of books on calculating their pension obligations and funding requirements.  One based on actuarial values and another based on “market values.”  Well the issue just came to light in a small case for the Citrus Pest Control District No. 2 that just received a very hefty bill to cover a shortfall (plus interest) for deciding to convert to a 401(k) plan.  What changed at the moment of that decision…basically Calpers went from calculating the benefit owed based on actuarial tables to using a more prudent ‘market approach’ considering it no longer had the right to go after the community for future contributions.

What is the ‘market value?” Basically, “the market value of a pension reflects the full cost today of providing a steady, guaranteed income for life – and it’s large. Alarmingly large, in fact. This is one reason most states and cities don’t let the market numbers see the light of day.”

If you want to see the difference between the two values, the Stanford Institute for Economic Policy Research now publishes the two for California pensions.

Thing is that pensions operate on the actuarial standards, standards which exacerbate pension shortfalls.  “Actuarial values determine the annual contributions that states and local governments make to their pension plans, so if the target numbers are too low, the contributions will always be too small. Shortfalls will be compounding, invisibly.”

As Jeremy Gold, an actuary and economist, made note in a speech last year “actuaries shamelessly, although often in good faith, understate pension obligations by as much as 50%… Their clients want them to.”

In the case of Citrus Pest Control District No. 2, Calpers was calculating the municipality’s obligations at an assumed rate of return on assets “now generally around 7.5%,” but when calculating the ‘market value’ of the obligation when the Citrus made the switch, Calpers used a more realistic (based on the current risk-free rate for a similar duration) 2.56%.  Boom, $447,000 shortfall – this is for only 6 people.

‘Houston we have a problem.’

America’s Dazzling Tech Boom Has a Downside: Not Enough Jobs. Jon Hilsenrath and Bob Davis. Wall Street Journal. 12 Oct. 2016.

The highlight is that for all the wealth created from the tech boom, jobs have been cut rather than added.

“Google’s Alphabet Inc. and Facebook Inc. had at the end of last year a total of 74,505 employees, about one-third fewer than Microsoft Corp. even though their combined stock-market value is twice as big. Photo-sharing service Instagram had 13 employees when it was acquired for $1 billion by Facebook in 2012.

“American tech workers are getting a smaller piece of the economic pie created from what they produce. As of 2014, employee compensation in computer and electronic-parts making was equal to 49% of the value of the industry’s output, down from 79% in 1999, according to the Commerce Department.”


“WhatsApp had more than 450 million users world-wide when Facebook bought the messaging service for $19 billion in 2014, turning founder Jan Koum into a billionaire several times over. At the time of the acquisition, WhatsApp had 55 employees.

“Economist call the phenomenon ‘skill-biased technical change.’ The spoils of growth go to those few people with skills and luck and who are best positioned to take advantage of new technology.”

“The five largest U.S.-based technology companies by stock market value-Apple, Alphabet, Microsoft, Facebook and Oracle Corp.-are worth a combined $1.8 trillion today. That is 80% more than the five largest tech companies in 2000.”

“Today’s five giants have 22% fewer workers than their predecessors, or a total of 434,505 as of last year, compared with 556,523 at Cisco Systems Inc., Intel, IBM, Oracle and Microsoft in 2000.”

“Harvard University economist David Deming estimates that the hollowing-out of work spread to programmers, librarians and engineers between 2000 and 2012. As much as $2 trillion worth of human economic activity could be automated away using existing technologies, such as Amazon’s robots, in coming years, consulting firm McKinsey & Co. estimates.”

Other Interesting Articles

Bloomberg Businessweek

The Economist

Bloomberg – China Property Bubble Could Cause $600 Billion in Bad Debts 10/6

FT – Italy’s 50-year bond – mind the valuation gap 10/6

FT – Renminbi eyes lows as China enjoys reserve currency status 10/9

FT – The Saudis’ strategic failure 10/9

FT – China approves controversial debt-for-equity program 10/10

FT – More millennials switch off social media 10/10

FT – Norway’s oil fund warns on lack of stock market listings 10/11

FT- China corporate raider’s wealth soars ninefold to $17bn 10/12

FT – Dividend or disaster? Nigeria grapples with demographic conundrum 10/12

NYT – Behind Duterte’s Bluster, a Philippine Shift Away From the U.S. 10/9

NYT – This City Is 78% Latino, and the Face of a New California 10/11

WSJ – Recession Odds: Fed Says Don’t Count On It 10/9

WSJ – WeWork Raises $260 Million, Capping Off $690 Million Funding Round 10/12


May 20 – May 26, 2016

Venezuela about to become a formal dictatorship. Container shipping industry going through one of its (if not the worst) downturns. A handful of US tech companies are flush with cash.



    • “The plunge in yields on corporate and sovereign bonds in Europe and Asia – the value of bonds with a negative yield is nearly $10tn, according to Fitch – has sent investors racing into the US market.”
    • “The hunt for yield is very high.” – Bob Michele, chief investment officer at JPMorgan Asset Management
    • “The inflows have suppressed corporate borrowing costs at a time when new debt issuance is accelerating…”
    • “More than $900bn of corporate bonds have been sold in 2016, including $411bn in the US, according to Dealogic. Seven of the 20 largest bond offerings of the year have been completed this month alone.”
    • “The latest figures for the loans-to-bonds swap, and the debt-to-equity swap initiated last year, show a subtle bailout is already under way.”
    • “Chinese media reported that up to Rmb4tn ($612bn) had been approved in 2015 for the debt-to-bonds swap, which has seen state-controlled banks trade short-term loans to companies connected to local governments in exchange for bonds with much longer maturities.”
    • So far this year the number of swaps has hit $220bn at the end of April, up from approximately $120bn at the beginning of March, according to Wind Information.
    • “Up to Rmb1tn ($152bn) has also been approved for a debt-to-equity swap, which forces banks to write off bad debt in exchange for equity in ailing companies, according to Caixin, a respected business news website.”
    • “The Opec member’s gold reserves have dropped almost a third over the past year and it sold over 40 tones in February and March, according to IMF data. Gold now makes up almost 70% of the country’s total reserves, which fell to a low of $12.1bn last week.”
    • “The IMF forecasts the economy will shrink by 8% this year, and 4.5% in 2017, after a 5.7% contraction in 2015. Inflation is forecast to exceed 1,642% next year, fueled by printing money to fund a fiscal deficit estimated at about 17% of GDP.”
    • Remember that Venezuela has larger crude reserves than Saudi Arabia…
  • One of the articles from the print edition of the Economist this week profiled the rapid rise of the insurance industry in China and how the regulators are implementing measures to keep things from getting out of hand.
    • “Assets managed by insurers have doubled in less than four years to 13.9 trillion yuan ($2.1 trillion). Their revenues from selling policies have accelerated, climbing 42% year-on-year in the first quarter of 2016. Most remarkable has been the increase in their workforce. Over the past six months alone, they have added 2m to their sales force. They now employ some 7.2m people, up 120% since the start of last year. Put another way, roughly one in every 50 workers in Chinese cities is selling insurance products.
    • “The most aggressive firms have scaled up by offering guaranteed returns of 6% or more on short-term investment products.”
    • In an effort to curb speculative behavior, regulators have “barred insurers from selling products with maturities of less than one year and began to phase out those with maturities of less than three years.”
    • “The heyday of rapid expansion by opportunistic firms is over, predicts Lee Yuan Siong of Ping An Insurance, one of China’s biggest providers. ‘The government saw the danger early enough before it got out of control.’ If the new rules work, insurers will need to focus on persuading people to buy their policies for protection rather than as an investment. That is a safer bet, but a harder sell.”

Special Reports


Selfstorage.com – Inside America’s Gig Economy (and how to work it) – Alexander Harris 5/17

Selfstorage.com_The Gig Economy_5-17-16

FT – Triple A quality fades as companies embrace debt 5/24

FT_Near extinction of the US AAA company_5-24-16

FT – US productivity slips for first time in three decades 5/25

FT_US productivity slips_5-25-16

Economist – Insurance in China: Safe or sorry? 5/21

Economist_Insurance in China_5-21-16


*Note: bold emphasis is mine, italic sections are from the articles.

Venezuela: Trouble on the streets – The country is poised between chaos and dictatorship. Economist. 21 May 2016.

Over the next month, expect Venezuela to become a dictatorship or the current regime will be overthrown.

Currently the government forces are blocking all routes to the National Electoral Council (CNE) to keep any opposition/protestor group from being able to submit a petition that would initiate a process to recall the embattled president (Nicolas Maduro) through a referendum.

“Almost 70% of Venezuelans want Mr. Maduro to leave office this year, according to a recent poll… Venezuela is suffering the world’s deepest recession.”

“After the May 18th protests he (Maduro) threatened to supersede the current economic state of emergency (announced five days earlier) with a ‘state of internal commotion'” which would give the government the “…ability to impose something closer to military rule across the country.”

“Mr. Maduro has already indicated that he will govern without regard to the National Assembly, which came under the control of the opposition after elections last December. ‘It is a matter of time before it disappears,’ he said blithely at a press conference on May 17th.”

The thing is that while opposition politicians are seeking to appeal to the military’s sense of deference to the constitution, Maduro and his predecessor Chavez make sure and made sure that the military is generously compensated while the rest of the country suffers.

“Venezuela’s neighbors are appalled by the prospect that the country might implode. They may not be able to stop it.”

Container shipping lines mired in crisis. Robert Wright. Financial Times. 19 May 2016.

“The industry (container shipping), a vital link in the world’s supply of manufactured goods, is suffering what could well turn out to be the deepest and longest downturn in its 60-year history.”

FT_Container shipping earnings_5-19-16

“Container shipping lines have made a series of investments in new, giant vessels, and this glut of capacity has sent freight rates tumbling. The Shanghai Containerized Freight Index – one of the few public sources of information on what lines are charging to ship a container – last month reached the lowest level since its inception in 1998.”

“Over the next few years, [container shipping is] a sector that’s going to really get slammed,” says Ron Widdows, a shipping consultant and former chief executive of Neptune Orient Lines, the Singapore-based line.”

Consolidation and cooperation (alliances) are common place as container lines are seeking to achieve better efficiencies to cut costs.

FT_Container shipping alliances_5-19-16

“This month, three Japanese lines – Mitsui OSK, K Line and NYK – outlined plans to form a new alliance with Hapag-Lloyd, South Korea’s Hanjin Shipping and Taiwan’s Yang Ming, to be known as The Alliance.”

“CMA CGM announced last month it was forming a new partnership, called the Ocean Alliance, with China Cosco, Taiwan’s Evergreen and Hong Kong’s Orient Overseas Container Line.”

This is all to compete against the P2 Alliance of the two largest container fleets of Maersk Line and Mediterranean Shipping Company.

“In the first quarter of 2016, Maersk generated $1,857 of revenue for each 40ft container it carried on its ships, 25% less than one year earlier, and $203 below the average cost of moving each box.”

FT_Container shipping expanding faster than trade_5-19-16

US companies’ cash pile hits $1.7tn. Eric Platt. Financial Times. 20 May 2016.

“Apple, Microsoft, Alphabet, Cisco and Oracle had amassed $504bn of cash by the end of 2015, nearly a third of the total $1.7tn held on the balance sheets of US non-financial companies, according to a new report from rating agency Moody’s.”

FT_US corporate cash_5-20-16

“It is the first time the top five cash hoarders have been made up exclusively of tech groups, an industry that generates more of its sales abroad than any other sector and one that has been embroiled in tax disputes in both the US and Europe.”

“The ever increasing amount of cash also highlights how US boardrooms are reticent to invest in their businesses, choosing instead to increase dividends, in a sign of the continued anxiety that economic activity could still slow at home or in China.”

“Apple accounted for more than a tenth of the total cash reserves, holding $216bn, 93% of which is overseas.”

FT_US Top 20 cash rich cos_5-20-16

“But the rising cash piles mask a rapid increase in debt.”

“Total debts rose nearly $850bn last year to $6.6tn, a separate report from S&P showed, which put overall cash levels in the US at a slightly higher $1.8tn. While cash had increased by about $600bn over the past five years, obligations surged by $2.8tn.”

“While the top 25 cash hoarders hold cash in excess of their obligations, the cash-to-debt ratio fell to 12% for low-rated junk companies. In 2010, that figure stood above 20%.”

“‘Companies aren’t exactly flush with cash,’ S&P analyst Andrew Chung added. ‘As the credit cycle ages, rates rise and macroeconomic growth slows, that’s when companies in the bottom 99% who levered up [could have] funding issues.'”

Other Interesting Articles

Bloomberg Businessweek

The Economist

Bloomberg – Sugar Is So Scarce in Venezuela That Coca-Cola Will Stop Production 5/23

FT – Elizabeth Warren slams Uber and Lyft 5/19

FT – China reopens securitized bad-debt market 5/19

FT – Hanergy founder resigns one year after stock plunge 5/20

FT – Liquid alternative mutual funds leave investors disappointed 5/22

FT – Negative interest rates fuel record Japan share buybacks 5/23

FT – Triple A quality fades as companies embrace debt 5/24

FT – Regulators accuse Swiss bank BSI over 1MDB scandal 5/24

FT – Investing in China debt? Do not forget to factor in the politics 5/24

FT – US fracking bust sparks surge in car debt 5/24

FT – Olivier Blanchard and Adam Posen believe a recovery is on track 5/25

FT – Viacom’s battle is a warning to Silicon Valley 5/25